Jason Hartman: Welcome to the Creating Wealth Show. This is your host, Jason Hartman, and this is episode number 278. Wow, 278 episodes. We’re almost breaking the 300 barrier here. And so many people like Roger Bannister’s Four Minute Mile and Chuck Yeager’s sound barrier thought it couldn’t be done. But here we are. I’ve got a guest host on with me today and that is Brandon Laws coming to us from Portland, Oregon. Brandon, how are you?
Brandon Laws: I’m doing great, Jason. It’s great to be part of your show. Thank you for having me.
Jason Hartman: Thanks. You’ve attended a few of our events. You’ve flown down to Southern California to attend a few of our events before.
Brandon Laws: I have, yeah. I’ve been to the Creating Wealth Show I think a few years ago and then I came to the Meet the Masters last year.
Jason Hartman: Right, the Creating Wealth Seminar. I believe we met. We’re on the show now.
Brandon Laws: That’s right.
Jason Hartman: You’ve been a listener and follower for a few years now and you just have some interesting comments. Folks, be careful. I have to warn you listeners, be careful. If you send me an email, watch out because this thing today that is happening with Brandon might just happen to you. Here’s what I mean by that. Brandon said – he wrote me an email the other day and he said, “Hey, Jason, I think that’s a great idea. Why don’t you talk about some of the good books you’re reading on the show?” I said, “Okay. Brandon, you are deputized to co-host that show with me.” So here you go.
Brandon Laws: That’s right.
Jason Hartman: Good stuff. You wanted to start – I know that when I did the interview and we’ve talked about it on prior episodes a few times, too. When I did the interview with Steven Kotler, who co-authored the book ‘Abundance’ with Peter Diamandis, you were interesting in that and you’ve been reading the book or I think you finished the book, right?
Brandon Laws: I actually have not picked up the book yet. It’s on my list of books I want to read, but that book in particular was pretty interesting. I mean, I actually listened to interview with Steven Kotler that you had and I just had some few questions that I hope can dive into.
Jason Hartman: Sure, ask away.
Brandon Laws: In the book, they mentioned that the world is getting better. To me, it seems like there’s a lot of negativity out there. So, what do they mean by the world’s going to be better long-term and that there’s a lot of abundance in terms of maybe the goods that we’ll have.
Jason Hartman: Well, I think that this whole thing is the question of will technology save us? Can technology save us? If you look at the revolutions that have happened in technology throughout history, it certainly has saved civilizations before and it could save us, too. Of course, from a governmental perspective, we’re doing almost everything wrong, not just in the U.S., but globally. I mean, it’s like an infectious virus. The mismanagement has just spread all over the globe. What I’m talking there is pandering to buy votes the way politicians do. This is like the tyranny of the majority which has been talked and written about over the years where you got 47% of people in the U.S. right now that are somehow on the dole as it were, that we’re getting benefits from government. And as soon as that tips to 50% or, God forbid, 51% or more, you’re going down to pure socialism because the politicians will always pander to buy votes and as they do, that just means spending, give away more free goodies. But all of that would cause inflation, dollar collapse, we’re going to talk about that in a minute when we talk about Peter Schiff here and Dan Amerman. But maybe, and it is possible, I think, some technologies will come along that make everything so cheap and so accessible and advance civilization so much that it would play against some of these very negative factors that are going on out there. One that you mentioned to me before and you talked about is education. I know you have a question about that. Maybe that’s a good one because I haven’t really talked about it much on the prior episodes, but what are your thoughts on that from the Abundance book?
Brandon Laws: My thoughts with that is how can technology actually produce top tier education that everybody can access? So not just in private and public schools, but how will technology drive top tier education for everybody?
Jason Hartman: Yeah. Well, technology is a distribution platform. When you look at the Internet, it’s the most incredible distribution platform ever invented. Before that, it was shipping, railroads, trucks and so forth, and television and radio, book publishing, all of that stuff. But if you look at the Internet, it is the first way really to distribute things for free. I mean, any idea can be posted online. You know, Brandon, you know what I really realized? It just amazed me. It was about midnight, I think, 12 years ago. I remember the first book that I published was ‘Become the Brand of Choice’. It’s a book about marketing and relationship marketing that many people had asked me about over the years in my traditional real-estate career, and I went to Amazon.com and it took about seven minutes, as I recall, to post that book online. I thought, “What an amazing thing.” Here I have just posted my book and exposed it to – I think at that time Amazon had like 30 million customers and they have much more than that now. Back then, it was amazing to me. It was about midnight and I thought I just exposed this to the whole planet. Anyone can get the ideas I have in that book for just a few bucks and they can do it almost instantly. It’s an amazing, amazing thing. In the book Abundance, the authors talk about the Khan Academy, and the con academy is just a phenomenal thing that anybody listening, they want to take advantage of right now. It was a person who wanted to teach, I believe, his nephew some school lessons and decided to make a video. In doing that, they – by the way, that’s K-H-A-N academy.org for the listeners who are interested in checking it out. And basically posted a video and it was so well received that he started making all sorts of videos. There have been so far, if you look at their website, 189,425,528 lessons have been delivered. These are short videos that are maybe seven minutes, ten minutes long, and anybody in the world can go and they can learn about computer science, they can learn about Obama Care, they can learn about geometry, they can learn differential equations, they can learn linear algebra, they can learn trigonometry, it’s amazing. They can learn finance, valuation and investing, venture capital, they can learn about the credit crisis, they can learn about history, American civics, art history, they can study for their SAT, their GMAT, it is – Brandon, it’s amazing!
Brandon Laws: The Internet is amazing and it’s allowed everybody a platform to get on – think about what you’re doing right now. You’re able to produce educational content via podcast and deliver it to the entire world. It is pretty amazing.
Jason Hartman: And we have listeners all over the world. Something like the Khan Academy, it really begs the question, Brandon, is college obsolete? Is college worth it? Maybe it’s just not worth it anymore, as long as someone is a self-starter and a curious person and interested in learning. You can learn a lot of this stuff just online and it’s free. It’s amazing. I’ll tell you something we’re doing in a couple of my companies. We’re creating online courses right now and you may know about this already, what we’re doing. I’m not sure if you do, but we’re taking my Creating Wealth Home Study Course, for example and right now this is in production. That has always been the live course that you attended, you flew down to Southern California to attend that, and then it was a home study course where it’s either on CD or audio download from the Internet, along with PDF files or printed workbooks and a transcript book. Now what we’re doing is we’re taking the next step in the evolution of that course and we’re creating an online course using an LMS system, otherwise known as a Learning Management System. These are the same things that a lot of colleges and universities are using nowadays to teach people and the difference is this. It’s far more interactive. People will watch video, listen to audio, they’ll watch PowerPoint presentations on their computer screen. But the difference is every so often, maybe every 20 minutes or half hour in the course, they’re going to have a little quiz and the computer grades the quiz and they have to pass the quiz before moving on to the next section. So it’s interactive. It’s like having a virtual professor. Some of the courses we offer, we’re actually taking this into the financial services industry, the one I criticize so much, and we’re going to offer a continuing education course for certified financial planners that are interested in telling their clients about income property and real-estate investments. The great thing is this stuff is inexpensive, it’s totally accessible to anyone anywhere on the planet with an Internet connection, and instead of that old version hope study course type thing, it’s really engaged, interactive, space repetition, all kinds of cool features, and even in the case of the financial planner offers them a certification that they can use to renew their various licenses and comply with regulatory requirements. They’ve taken an online course. So, really just incredible opportunities in education. Your thoughts?
Brandon Laws: I think that’s amazing. Anytime you can make an interactive for people, instead of taking a physical course where you can get online and make it interactive, I think that’s great for people. I think more people will be able to access the information you got basically.
Jason Hartman: Yeah, and that’s what it’s all about. Everybody can access this stuff all around the planet. So, a real revolution is going on in education. Another thing they talk about in the book, Abundance, is they talk about the rising billion. So we’ve got about 7 billion people on Earth. There are economic divides, political divides, but there’s also the digital divide, and the digital divide is closing. For example, one of the best things that UN could probably is create a global Wi-Fi network if you ask me. We’ve all probably heard about this $100 laptop program and computers are getting out around the world so that people can access things. But Internet connections around the world are expanding so dramatically. And think of what happens when the next billion people come online. All of the ideas they have, the money they will soon have to spend, even if they’re impoverished people largely, just small amounts of money in microfinance, access to things like Kiva. By the way, I don’t think I’ve ever talked about Kiva on the program, but I’m a Kiva lender, K-I-V-A, look that up. Kiva is a phenomenal thing, microfinance, micro lending where you can go on and loan someone’s $25 or $75 and they can expand their business in a foreign country. That’s a phenomenal thing. Really, this rising billion is going to change a lot. It’s a whole new huge market. Granted they’re not making $100,000 a year, but there are so many of them, by their sheer numbers of people, that will be a huge stimulation to the global economy. There are some really phenomenal things coming up. Now, all this said, the one that I don’t thing changes much in terms of my investment strategy is simple, basic materials like housing. Housing, again, is a low, low tech item. It’s made of sticks and bricks, packaged commodities, and as this rising billion become more prosperous, and they will undoubtedly, and as others around the world become more and more prosperous, they will actually use more and more of these materials, driving the prices of them up. There’s not any big disruptive technologies in material science that I can see on the horizon. There are in ideas, education in bits, computer bits, which, by the way, leads us to our next subject. You wanted to talk about the book ‘Free’ by Chris Anderson. He talks about atoms and bits in that book. So maybe we’ll jump to that one now.
Brandon Laws: Yeah, that’s great. So, in the Free, which, by the way, I’ve read about four times because I love it that much.
Jason Hartman: Isn’t it good?
Brandon Laws: Chris Anderson mentions that some things are just simply too cheap to meter. So what sort of goods is he actually talking about and what actually causes it to be too cheap to meter?
Jason Hartman: Well, he talks about in that book — and I just love that book free. I want to get Chris Anderson on the show. Really, it’s just a brilliant book? One of the things he talks about is talks about a quote and I think it was back maybe the 1950s from one of the big execs in the electric industry, in the electric utilities industry, and they were quoted as saying electricity will be so plentiful that it will too cheap to meter. In other words, it wouldn’t even be worth keeping track of how much electricity someone uses because it’s just too cheap to meter and that didn’t exactly happen. However, there are other things that are too cheap to meter and I think we just really talked about some of them in terms of education and ideas that spread around the Internet globally. You know, the Khan Academy is free. What we’re doing right now with the podcast, Brandon, is free and we’re sharing ideas with other people all around world. The last I checked, which frankly was a long time ago, I should check this again. We had listeners in 26 countries, from Ukraine to Andorra to China, to Kuala Lumpur. All over the world we have listeners. This education, it’s too cheap to meter. It’s just free. We’re glad to do it because there’s a business model behind it. I want to attract clients to invest in real-estate, but even if they don’t invest with us, I want to spread the ideas around because I think it’s a real service to people and I think people will remember that 10, 20 years from now. Even if they don’t invest with my company, they’ll notice how I changed their life years in the future. And so, Chris Anderson talks a lot about how companies should just give things away and have a business model behind it. So, things that are too cheap to meter are bits, and bits and bytes on a computer, you know, data, that’s too cheap to meter in so many cases. And so, you can give that away.
Now, atoms are different because atoms are matter. Those are hard things, right? A book is made of atoms. It’s got paper and it’s got ink and it has shipping cost associate with it. But now with the Internet, you can distribute e-books via Kindle or other e-reader devices or just PDF files and you can do that basically for free. A lot has changed, hasn’t it, with the whole open-source software revolution and so forth and I think that leads to your next question about Microsoft.
Brandon Laws: It sure has, yeah. So with the free model that Chris Anderson talks about, and actually, at the end of the book, he gives, I think, the 50 business models you can create, which is pretty interesting, so check that out. But how do companies like Microsoft compete with a free model like Google?
Jason Hartman: Well, I can’t really remember because I read Free several months ago and I can’t really remember what he said about Microsoft in the book. However, my sense of it is that my sense of it is that Microsoft, it’s an interesting company. Microsoft is vastly overreaching, first of all, into way too many things. I think Microsoft, obviously, they’re not going to take over the world anymore. At one time, we all thought they would but they’re up to some stiff, stiff competition. If you look at Google and compare Google to Microsoft, Google is that largest company on the planet based on the concept of free. Think about all of the Google products. Any listener is probably using it. Now, you are paying for Google in another way. You’re paying with your data. That’s a whole nother issue. By the way, I want to recommend. I did a show, my Holistic Survival Show, with the author of a book called ‘Search and Destroy’ and that investigated the evils of Google. Interesting that their mission statement is, “Do no evil.” Google does a lot bad things, at least according to this author, and that’s definitely worth checking out. But if you think about all of the free products that we use that are Google, most likely you don’t pay for any of them. I pay for a few Google products but not much, and it Microsoft has some real stiff competition. I think that company needs to do some soul searching, and I know they have, this is not new, and really figure out who they are and what they’re going to be because the free model is offering them some big competition. The Microsoft Office products I have on my Mac, Microsoft Word, PowerPoint, et cetera, I use them but less and less. More and more I’m using Google Docs, which is the Google Suite where they have a spreadsheet instead of Excel, where they have a word processor instead of Microsoft Word, and they have all kinds of other great products and they’re free. I think Microsoft has some tough, tough things to think about.
Brandon Laws: What’s funny about Microsoft is I find myself using Microsoft Office as well, but it’s only because of the compatibility with sending files with other people and because I work in the corporate atmosphere. That’s just the norm. I would love to move to Google Docs and on my personal side, I do use Google Docs. It’s just funny corporate is not going away from the Microsoft Office as of right now.
Jason Hartman: Yeah. Well, you know, old habits die hard but ultimately it’s going in that direction. I think you’ll see more and more move away from Microsoft every time your Excel crashes. Google Docs, they never crash. It works great and a lot less frustrating. But you ask another interesting question about who wins with this model. Elaborate on that, if you would.
Brandon Laws: Yeah. So, with the free model, I wonder how many profits are – you’re able to get the profits out as a business. So, who actually wins in this scenario? To the businesses win in the free model or do the consumers win? It seems like with the consumers, you have access to cheap data, cheap information, but for the businesses, where are the profits at?
Jason Hartman: Because businesses, if they set it up right and read the book free, they have a backend service or deeper product they’re selling and that’s where they monetize free. But you know what I found, for example, with podcasting, all free. It’s been a great source of business for my different companies and one of the other things that actually does is it makes our job a lot easier because – there was in the old days, Brandon; there was a day where you had like the slick, cheesy sales person. I think everybody thinks of a car sales person or in real-estate. There’s a famous movie about it called Glengarry Glen Ross, where they’re selling, I think, timeshares. I can’t remember, but these like cheesy old sales people — and the old philosophy there was pull the wool over the customer’s eyes, deceive the customer. Don’t tell the customer everything. And, of course, legally that’s a big problem but let’s not even talk about the law. Let’s just talk about business and the way business works. My favorite customer, Brandon, is a highly educated, highly informed customer. And I’ll tell you why, because they’re much easier to work with. They get it. We don’t have to educate them. They’ve listened to all of our free content. They’ve listened to 278 episodes of the Creating Wealth Show or my other shows, and they’re just a really easy customer to work with. The first time I started noticing this is when people would call up and they said, “I’m interested in investing. What about this area in Texas?” and I would start to explain it to them why this city is good and the employment. They go, “Jason, stop. I’ve already heard all that on the podcast. You don’t need to explain it to me again.” I thought, “Wow!” Isn’t that great? It’s a time saver for both of us because the consumer can benefit and listen at their leisure, at the time that’s best for them, review things multiple times if they wish, and it’s a time saver for me too, because I can just help them engage and get the property they want. So, I think it’s a true win-win. A long time ago, I read a book Dennis Waitley called ‘The Double Win’. The win-win mentality is really where it’s at, folks. If everybody doesn’t win, you just can’t do a deal because ultimately – I remember going to a seminar a long time ago and it was a real-estate seminar and the speaker said the best deals never close. I thought that’s an interesting statement. What does he mean the best deals never close? What he meant is that if you’re a buyer and you get too good a deal, the seller will usually figure that out and find a way to whistle out of it. If you’re a seller and you pull the wool over the buyer’s eyes and make them pay too much, they will usually figure that out and try and unwind that deal. So, it’s got to be win-win. Steven Covey says win-win or no deal, the late great Steven Covey. I’d agree with that. I think both win. They really do.
Brandon Laws: So, Jason, will we ever get to a point in our lives where almost everything is free? With technology advances, I could see the trends going that way, but will we ever get to the point where almost everything in our lives are free?
Jason Hartman: No, I don’t think so. I don’t think we’d be even close because there are still hard costs. Remember, it’s all about the difference between bits and bytes and atoms. Atoms are physical products and physical products have to be made with somebody’s hands and with machines that somebody builds and maintains. That’s the difference as real-estate investors, as income property investors. We want to control resources that are made of atoms and we want to utilize resources that are cheap or free made of bits and bytes. That’s information or data and that’s what you’re doing right now listening to this show. So control the atoms because atoms are things that have universal needs. There are sticks and bricks, the copper wire, the lumber, the labor, the petroleum products, all that stuff in what we call package commodities investing; where you’re buying houses and those materials have universal need. The atoms. I think that’s what comes out of this, Brandon. Control the atoms, use the bits, okay?
Brandon Laws: I would agree with that.
Jason Hartman: Good stuff. We’ll be back in just a minute.
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Jason Hartman: Why don’t we talk about this recent video of Peter Schiff? You want to talk about that?
Brandon Laws: Yeah, let’s do it. So basically, Peter Schiff is talking about QE3 and what it means. I think he’s definitely selling gold on the backend but I think we’re going to play the video and talk a little bit about that.
Jason Hartman: Let’s do that. This is a pretty long video. We’re going to stop it a few times. I tell you, I just couldn’t have said it better myself, so I want you to hear what Peter says. As all of you regular listeners, I’m sort of a critic and a fan of Peter Schiff at the same time. I think Peter Schiff has a great premise, he’s the master of the sound bite. I think his conclusion is largely wrong. I was one of his clients. I’ve had him on the show. I think he was on show number 69 if I’m not mistaken. I would love to see Peter Schiff as a senator. I’m not much of a fun of his investment stuff, but I think as a economist he’s great. That’s kind of where I come down on him. But let’s listen to this video and we’ll pause it a few times for some comments.
Peter Schiff: Peter Schiff. It is Thursday, September 13, 2012, and as far as I’m concerned for the Federal Reserve, this is a date will indeed live in infamy because this is the day that the Federal Reserve went all in on QE. Now, rather than reviving the economy, the Fed has just sealed its fate. In fact, I think it has driven the final nail in the coffin of the U.S. dollar and with it, the entire U.S. economy. What Ben Bernanke has committed to do is supply an indefinite QE of money printing. Ben Bernanke said that he will $40 billion worth of mortgage backed securities monthly for an indefinite time period. He also promised to extend Operation Twist to the end of the year. In fact, as far as I’m concerned, this new policy may as well be called Operation Screw, because if you own dollars, you’re screwed. If you own bonds, you’re screwed. If you have a savings account, you’re screwed. If you’re an American working for wages of salaries, you’re collecting a paycheck in dollars, you’re screwed. If you’re hoping to retire on dollars, you’re screwed. In fact, Ben Bernanke was asked a question during his press conference and I think the press conference, which I’ll talk about a little later, was maybe more interesting than the statement itself. But in answering a question, did he think it’s fair to the savers that you’re getting no interest? Because the Fed also promised to extend the 0% interest rates now to 2015 and he said it’s too bad for savers but look, it’s good for the stock market. So in other words, if you got your money in a bank, pull it out and buy stocks, otherwise, you’re going to be twisting in the wind as a result of Operation Screw. In addition to that –
Jason Hartman: One comment here, I think that what is happening here, and it’s kind of a big conspiracy in a way is that this is very intentional and Peter Schiff alludes to this here when he talks about how it’s Operation Screw because what they’re doing is they made it impossible to save money. In other words, if you want to save money, you’re just going to get creamed by inflation and taxes. So, saving money doesn’t work. They completely disincentivize good behavior. So what we need to do essentially as income property investors is we save money in sense, but we save it in the form of goods. See, what Peter Schiff is saying here is buy gold. That’s the way you should preserve your wealth. I’m saying buy things that have universal need. Buy housing and buy all of those package commodities that come with housing. That is really the point because they totally disincentivize savings. You can’t earn anything on it and this is particularly bad for elderly people who have saved money all their lives and are just getting destroyed. The Fed is trying to encourage, and so is the government, speculative bad behavior. They want you to put it into stocks. They’ve reinflated the stock bubble, which is an illusion for sure, and now, frankly, I think they’re trying to do the housing bubble again. We can really profit from that on the way up, whether there is or isn’t a housing bubble. If they force housing to appreciate, that will create more employment and solve a lot of the problems there and heck, lets ride that bubble up with these bad policy makers. Brandon, any comment?
Brandon Laws: Yeah. Actually, what they’re trying to do is increase asset prices, but isn’t that simply an illusion for people, as if they have wealth that they didn’t have before? Are they going to go out and spend a bunch of money, they’re going to use their equity as a piggy bank? It just seems crazy to me.
Jason Hartman: It is a total illusion, there’s no question about it. However, it works. It will just allow them to kick the can down the road a bit. And one of the things we’ve got to talk about here is who would ever buy these bonds from the Fed? We’ll get to that, but let’s just go on with the video.
Peter Schiff: The Fed promised to keep interest rates low even after the economic recovery gained traction. In other words, it’s tantamount to the Fed admitting that he realizes that the only reason the economy is going to accelerate or recover is because of the cheap money and that the Fed knows that it can’t take chief money away because it will simultaneously take the recovery away. So it is an open ended commitment to keep interest rates at zero. However, it’s not going to be able to keep that commitment. The Fed is saying that it’s going to keep rates low until we get the job growth that we need. The fact of the matter is the reason that we’re not getting job growth now is because rates are too low. It’s because of all the money that the Fed has already printed that economy is so screwed up that I can’t create jobs and printing even more money is not going to solve the problem. Of course, the catalyst for this announce was the horrific job numbers that we got last week, where not only do we create fewer than a hundred thousand jobs, but almost four times as many people who left the labor force, meaning they threw in the towel. They were so discouraged that they quit looking for work and they’re no long even in the labor force as people who found jobs. In fact, the labor force participation rate is low as it’s been since 1981 and if you just focus on males, it’s the lowest it’s been since 1948. The Fed feels its back is in a corner and it has to act. In fact, in that press conference that Ben Bernanke gave in response to a question, he basically said that the Fed has one tool, and that’s purchasing financial assets to drive up asset prices and the Fed is going to use that tool. Even if it doesn’t work, the Fed is going use it. In other words, the Fed has a hammer and it’s going to bang everything it sees, even if it’s not appropriate. Maybe a hammer makes sense when you’re trying to put a nail into a board. It doesn’t make sense if you’re walking through a China shop. But in other words, he’s got this hammer and he’s going to swing it at everything in sight and he thinks it’s going to create jobs. The only thing he’s going to create is inflation and of course, the Fed denied that he was going to create inflation. Of course, even as the price of gold was surging over $30 an ounce in reaction to what the Fed said, silver up about –
Brandon Laws: Peter is talking about hoe the Fed has this one tool to buy bonds. But does the Fed actually have any other tools they can actually use to try to stimulate the economy, Jason?
Jason Hartman: Yeah, they have other tools but what they’re basically doing — I mean, this is the big tool. The big tool is create fake money out of thin air and talks about gold going up $30. This is the guy that said gold would be $5,000 by the end of Obama’s first term. I got to find a video clip of that somewhere. I really should search for it. I remember seeing it with my own eyes. I think he was on CNBC and it’s always this speculative, oh, gold is on a run, it’s going on a tear, this reason, that reason, they’ve got all the reasons and they’re not wrong about the reasons. I’ve said that so many times, but the thing they never tell you is that there is so much more in control of the gold market than logic. There are so many forces like central banks that are so much bigger than individual investors wanting to gobble up gold. It’s just a worldwide cartel. Just look at the Data website, the Gold Anti-trust Action Committee who says the price of gold is manipulated. Of course it’s manipulated like crazy, and that means don’t invest in it. I think it’s a lame investment. It’s a way to save money. That’s all it is. It’s better than dollars, but it’s not a real solution. It’s not offensive, it’s only defensive. Peter, you better hurry if we’re going to see gold at $5,000 an ounce. You only got a few months here of Obama left. And the question is even that happens, even if gold, over the next three months goes to $5,000 an ounce, the question is did the gold go up or did the dollar go down. You talk to any gold bug, I guarantee you they will say the dollar went down. So, you’ve only treaded water. You didn’t gain anything. You preserved your wealth in a commodity. Great, I think that’s okay. But why not preserve in commodities that have true universal need like housing, where you can get the bank to pay for 80 to 90% of the asset for you and loan the money to you until 2042 at artificially low interest rates and then that loan is repaid by the tenant? And then you get a bunch of tax right off to boot. I mean, gold is a mediocre solution at best. Your thoughts?
Brandon Laws: I absolutely agree with you, but I wonder, are they speaking with the people who just are sitting on a bunch in their bank? Because buying probably is better than just sitting on a bunch of cash.
Jason Hartman: I agree. I think cash is the most dangerous asset class. In inflationary times, cash is just being devalued constantly. It’s amazing that someone pickpocket you and pull money out of your wallet without physically doing it. See, actually that ties in with our discussion about Chris Anderson. The dollar is just bits and bytes, really. It’s not atoms. In other words, it has no intrinsic value. Gold does. Copper wire in your houses, lumber in your houses, all the petroleum products a house is made of, the concrete, all those materials, the glass, the steel. Those are atoms. Those can’t be manipulated so easily like gold can’t as easily as the dollar. Yeah, with Fiat currencies, you can be pick pocketed through bits and bytes without anyone having to physically take that money from. Amazing, huh? Let’s go on, Brandon.
Peter Schiff: — pull up a dollar barrel, the dollar index hitting new lows up for the move, you got a new [Inaudible 37:08] in currencies. I think the Canadian dollar, the New Zealand dollar, even the Euro is now 129, I think headed much higher against the dollar. That’s how weak the dollar is. It’s even weaker than the Euro. In fact, Ben Bernanke started off his press conference by saying that the Fed printing and buying bonds was not the same thing as the government spending money. Now, what is the difference according to Ben Bernanke between spending money and buying bonds? Well, Ben Bernanke said that since the Fed is not buying goods, then it doesn’t count as spending. What do you mean? If you spend money on bonds, you’re still spending. Just because you’re not buying an actual product, you’re buying a financial asset, you’re still spending money. Your spending might buy a financial asset. Now, the Fed also went on to say that well, it’s not really spending, because whatever financial assets the Fed buys, it’s going to turn around and sell back into the market when it unwinds the policy. Yeah, right. How is the Fed going to sell all these bonds? The Fed is the only buyer. Without the Fed, no one in their right mind is going to buy. Who is going to buy when the Fed wants to sell? Who is going to step in front of freight train? Who is going to want to bid for mortgages when the Fed is trying to unload the mortgages that it owns? Nobody. In other words, the Fed has basically checked in the Rouge Motel of monetary policy, right? It could check in, but it can’t check out. It can expand its balance sheet but it could never shrink it. So the Fed is spending money. It is spending it on financial assets and in fact, the goal of the Fed is to make those assets rise in price. This is the craziest part about it, and it’s almost like it’s a fantasy or I’m in a dream because it’s impossible for me to actually believe that this is actually happening, that I’m actually hearing what I’m hearing or seeing what I’m seeing. But this is the plan that Ben Bernanke has. Ben Bernanke’s plan to revive the U.S. economy and create jobs is to inflate another housing bubble. That’s it. That’s what the Fed’s got. That’s what it came up with. As if the last housing bubble worked out so well for the economy that the Fed wants an encore. I’m not making this up. You could go check the Internet, YouTube it yourself, Google it, but basically this is what Ben Bernanke said. He is buying – the Fed is going to $40 billion worth of mortgage backed securities every month. The goal of the Fed is to bring down interest rates. Ben Bernanke specifically said the reason he wants to bring down mortgage interest rates is because he wants home prices to go up. Now, why does Ben Bernanke want home prices to go up? He specifically mentioned two reasons. One, the wealth effect. Ben Bernanke said if we can home prices to go up, home owners will feel wealthier and they’ll got out and spend more money.
Jason Hartman: That, Brandon, is exactly the bubble I want to ride up again. I’ve done it a few times in my life and as philosophically disagreeable as I am with that, that’s the thing. Like I say all the time, I used to be an optimist, now I’m just an opportunist. We’re not going to change any of this. We’ve got to respond to it in a way that enriches and in a way that helps create value. If they create another housing bubble, which they may be doing – you showed me an article about how a five percent increase in housing prices would basically lift, give a whole bunch of people equity, and guess what happens when people have equity. That ATM machine called your house becomes a way to stimulate consumer spending, doesn’t it?
Brandon Laws: I feel like we’ve seen all this before, Jason. It’s like unfolding right before our eyes all over again.
Jason Hartman: You know, Brandon, as Yogi Bear has those great quotes – he once said, “It’s like deja vu all over again.” It’s a repeat. This is a rerun. It’s amazing. They’ve got nothing better to do than just kick the can down the road. Let’s make another bubble and all that does is move money around. It creates malinvestment and boom, boom, boom, here we go. But folks, if you’re listening and you’re not into riding that bubble up that they’re going to create, you are going to miss out and you are going to be dramatically hurt because any other asset you have besides debt and commodities will be destroyed in value. Debt and commodities are the only safe places. Commodities keep pace with the inflation. So, when you invest into real-estate, you own a bunch of commodities instead of packaged commodities. If you invest in gold, yes, you have a commodity there, too. And by the way Schiff is in the gold business, we should say that. But that debt, see, you don’t get the debt against the gold. You get against the real-estate. That debt goes down in value. Again, it’s the only safe place in inflation, commodities and debt. That’s it. Denominate all your assets in things, or as Chris Anderson would say in the free book, atoms, and denominate all your liabilities in debt. That’s the strategy. You ready to go back to the video?
Brandon Laws: Let’s do it.
Peter Schiff: So he wants the wealth effect. He wants to create the illusion to the bought and buy stuff that they really can’t afford, not because they earned the money, but because their house is appraising at a higher value and of course, they can refinance, they can cash out money and go spend it. That’s one reason. Number two, Bernanke said if we can get home prices to go up, people will realize that they can make money buying houses. And if home prices rise, more people will want to buy houses because they can make money. They can get rich buying houses, and so that will encourage more home buying and as a result we’ll have more home building. If more people want to buy houses because they’re going up in price, then we’ll build more houses and we can create an entire economy of the housing market by the housing market for the housing the market. In fact, what the Federal Reserve wants to create is a super housing bubble. I mean, I kid you not. This is their plan. This is all they could come up with. And think about it, in the last housing bubble it was the government that was guaranteeing the mortgages but you still had the private sector owning a lot of the mortgages, although with government guarantees. Now they’re going one up. Not only is the government guaranteeing the mortgages, but the government is owning the mortgages. Basically, our new monetary policy, our new policy for economic revival is for the Federal Reserve to print money and loan it to Americans in ultra low rates so they could go out and buy houses and in the process, push up housing prices so we can all go on a consumption binge and spend all sorts of borrowed on imported products and somehow all of this is going to create employment and it’s not going to end in complete disaster just like the last time the Fed tried to create a housing bubble to stimulate the economy.
Jason Hartman: You know what? You just got to say, he nailed it. I mean, he nailed it. Here’s the thing, Brandon. You know who’s going to get hurt in the next housing bubble? It’s the same people that got hurt in the last one. It’s the speculators, the people that aren’t following my ten commandments and what is one of the commandments, the most important one relating to this exact concept? It is this one. I think it’s number five if I’m not mistaken. Thou shall not gamble. No speculation. In other words, the property must make sense the day you buy it or you don’t buy it. You know who’s going to get hurt in the housing bubble? People buying properties expecting something great to happen and that great thing is called appreciation. Appreciation to us prudent investors who listen to the show, you know what that comes from? It is the icing on the cake. It’s not the cake. The cake is cash flow, the substance of the investment, the thing that makes it make sense that they buy it, is cash flow. It’s income. The name of it is income property. It’s not called speculative appreciation property. It called income property and as the name would apply, it better produce income or you shouldn’t but it. So, any thoughts about that one, Brandon?
Brandon Laws: You said it perfectly. The deal has to make sense the day you buy it but your number one goal should be the cash flow. It shouldn’t be the speculation of the property. Everybody could ride this wave up on speculation, but if you don’t buy the deal based on cash flow then I think you’re setting yourself up for failure.
Jason Hartman: Of course, you are, and the reason the speculation concept doesn’t work is because it’s just like gambling in Las Vegas. You never know when the streak is going to end. Appreciation is very unpredictable. Cash flow, however, is pretty darn reliable. It really is. And remember, not only do property prices inflate, but rental prices inflate. You can ride the inflation wave that way and you can also have your debt destroyed by that same inflation. Let’s go back to the video.
Peter Schiff: Talk about insanity, talking about doing the same thing over again and expecting a different result. How can Ben Bernanke, with the memories of the last housing bubble and financial crisis fresh in his mind, how can he thing that the solution to the problem is to try to recreate the very conditions that created the problem? How is another housing bubble going to solve anything? Now, one thing maybe Ben Bernanke hasn’t figured out yet, it ain’t going to work no matter how much he tries, no matter how much air he blows into that housing market, he is not going to reflate that bubble. There are simply too many holes in it and there is no president for reflating a busted bubble. More likely, all that cheap money is going to go someplace else. Where is it going to go? Well, if you look at what happened today, 30-year bond prices went down and interest rates went up. In other words, the bond market stuffed it right back in the Fed’s face because I think the bond traders are waking up, the bond vigilantes maybe are coming out of their coma and they’re realizing the worse thing for the bond market is for the Fed to print money and buy bonds, because when they print money, they drive down the value of the currency that the bonds are denominated in. What went up? Gold, up over $30, silver, as I said, the dollar tank. So where is all this money going to go, commodities? It’s going to go to gold, it’s going to go to silver, it’s going to go into oil, it’s going to go into agriculture. It is not going to make the economy better, it’s going to make the economy worse. It’s not going to create jobs, but what it is going to create is a higher cost of living for everybody, whether you have a job or whether you’re unemployed. And believe me, if people are spending more money on food and more money on energy, they’re not going to have any extra money left over for discretionary spending. None of this is going to work. But the amazing thing is people are looking at Ben Bernanke and analyzing what they guys has to say, taking him seriously. Can’t anybody think? Doesn’t anybody remember what happened just a few a years ago? I mean, how can he not be laughed at as hell? During that press conference, how come people aren’t just shocked. How come they’re not just saying, “Say what? Are you kidding me? How can this be your plan? How can re-inflating a housing bubble be all that you’ve got? How long is it going to take for you to come up with this idea? How many are there at the Federal Reserve? Apparently there was only one guy that dissent it. It was almost unanimous. Can you imagine everybody at the Fed sitting around this big table? How do we revive the economy? What’s the plan? And somebody comes up with, “Let’s create a housing bubble,” so he can create a bunch of wealth and people will go out and spend it and we can get people to speculate on real-estate prices because they’re going up and all this is going to create jobs in the housing sector, it will cost more home building or home modeling, we’ll be able to consume more. Somebody came up with that and then someone else said, “Great idea!” I mean, didn’t they see that movie? Don’t they know how it ends? Apparently not. I’m going to tell you how that movie is going to end. It’s going to end in a currency crisis. It’s going to end in a sovereign debt. It’s going to end in tears and misery. The amazing thing is this has happened over and over again throughout history, yet we continue to repeat the same mistakes. We never learn from the past and I think the problem is the politicians who are making these decisions despite the fact that the Fed claims to be independent. It is not. This is all about politics. It’s not about economics, it’s not about doing what is good for the economy. The only jobs they are concerned about is the jobs of the politicians who are afraid that if the Fed tells the truth and actually does the right thing for the economy that they might not get reelected, because the right thing for the economy is bad politics. And even though you can look back in history and see how many times governments have destroyed economies by destroying the currency, they’re going to do it again because it’s politically expedient. They don’t care about history. They don’t care about the country. They care about themselves. So they’re doomed to repeat these mistakes because it’s the only thing they can do. The Fed can’t admit what the problem is. The Fed can’t take the punch bowl away. It doesn’t want anybody sobering up. It wants to keep force-feeding us alcohol so we don’t realize how screwed up the economy and maybe we’ll reelect the incumbents one more time. All I can say is you got to look through all this smoke, you got to buy gold, buy silver, get out of dollars. Get out while you can. Get into real things, owned stocks outside the U.S., in currencies with dividends and income that are not U.S. dollars –
Jason Hartman: Here is the total fallacy of that. What Peter says is one-third true and two-thirds false if you ask me. He says get into real things. Yes, I completely agree with that. Gold, mediocre version of a real thing but better than dollars, I’ll agree with him there. But then he talks about stocks outside of the U.S. Hey, Peter, here’s a question for you: what country isn’t doing the same thing we’re doing? This is basically a global phenomenon of countries that are all subject to the same types of political expediency. Very few countries are actually well-managed and what he’s saying their currency is more solid than our currency and virtually every currency is now Fiat currency. And so, I say it’s just a race to the bottom to collapse all currencies. I mean, not every one of them, I’m talking metaphorically but a lot of the currencies, the vast majority of currencies are Fiat. It’s a race to the bottom in terms of value of those currencies. And again, having been a client of Peter Schiff and losing a bunch of money with him, giving his guy $200,000, a month or two later I have $130,000 with his strategy. It hasn’t worked for me. I think Peter is great. I want to see him be president. Peter, I will give money to you campaign. I love your economics. But again, as an investment solution, I just don’t think it really, really works. I think it’s a defensive strategy which is okay. It’s better than dollars. He’s right about that, no question. Brandon, you have any thoughts about that?
Brandon Laws: I think a lot of his ideas are pretty spot on and I actually can’t help but to laugh at the one part where he said somebody got this idea together and they brought it to a group of people and they said, “Great idea!” To me, do these people actually believe this is going to work again?
Jason Hartman: No, I don’t think they believe it. They are too smart to believe this is actually going to work. All they’re doing is what is politically expedient, they’re kicking the can down the road and they’re just trying to make sure things are okay under their tenure. Bernanke will probably be gone in ten years. He has the same policy as Allan Greenspan. They call him Helicopter Ben because of his famous where he said, “I’ll get up in a helicopter and throw money down on the people.” In other words, create a bunch of fake money and stimulate the economy that way. It’s stupidity. Peter is right about that. He’s absolutely right. The question is what do you do as an investor? You got to buy hard things, assets. Like he said, get into real things, completely agree, that produce cash flow and use the bank’s money to buy them and that debt is destroyed by inflation. So that is the real strategy. You ready to go back? The video is almost done.
Peter Schiff: So the most important thing that you can probably do, you got to save yourself first. If we’re going to save our country, that’s the title of my book that’s out now, the real crash, America’s coming bankruptcy, how to save yourself and your country, you’ve got to save yourself if you’re going to save your country. We’re going to go over a real fiscal flip. We have a real crisis coming because of the Fed but we’ve got to protect ourselves. Hopefully, when we have this sovereign debt and currency crisis, when we have this giant shock that just maybe the Fed and the government will finally have an epiphany, have the moment where that light bulb goes off and they realize that we can’t keep doing this, we can’t keep repeating these mistakes. There’s something more important than the next elections and that’s the future of our economy. But until then, don’t bet on any political integrity or anybody in Washington doing the right thing. We’re going to be heading full steam over the edge of this cliff, a blindfold on, so all you could do is buckle, prepare for the impact and protect yourself. In fact, one of the craziest things that Ben Bernanke said — of course, he said so many it’s hard to pick which one was the craziest, but he actually said that he believed by printing money and buying bonds, he was actually going to help reduce the deficit. How could he do that? Well, he said that by printing money and buying bonds, we’re going to have a stronger economy and the stronger economy with more jobs is going to help bring down the deficit. Of course, the exact opposite is true. You don’t bring down the deficit by monetizing it. You don’t bring down the deficit by making it easier for the government to go into debt. You don’t stop the government from borrowing by buying up their bonds and making it easy for them. If the Fed were really concerned about bringing down the deficit, it would let interest rates go up. If interest rates went up, the deficit would have to come down because the government could no longer afford to finance it. It’s the Fed Reserve, it’s the money printing, that’s the reason the deficits are running out of control and the fact that the Fed has said we’re going to have QE indefinitely, we’re going to keep interest rates low forever, we’re going to print – buy bonds. That just basically gives a green light to the politicians to do nothing about the deficit, to keep on borrowing, to keep on spending, to grow the deficit until it all blows up, because that’s the only thing that’s going to stop this. It’s going to be an all out crisis. Hopefully, we get the crisis sooner rather than later because unfortunately, the further into the future it hits, the bigger the explosion. That’s it for tonight. Take care everybody.
Jason Hartman: So there you go. Boy, that’s long, but, you know, Brandon, the crisis is the inflationary crisis. That’s exactly what Peter is talking about and we have the best way, I think, to exploit that crisis and to benefit from it and to enrich ourselves and the people we care about from that crisis. Very interesting, huh?
Brandon Laws: Yes.
Jason Hartman: Yeah, it definitely is. Hey, I know we wanted to talk about Dan Amerman and we wanted to talk about the article about rising home prices, lifting another 1.3 million people out from under water. So, that’s the bubble Peter was talking about, huh, Brandon?
Brandon Laws: It is. Peter really hit on a lot of good points and what’s funny is it all comes back to these politicians. They just want to spend and that’s the biggest problems, the spending. If they could get their arms around that, then I don’t think we’d have a deficit issue, we wouldn’t have to be pursuing bonds via the Fed. It comes down to spending.
Jason Hartman: Yeah, but the problem it’s just not popular to reduce spending. I mean, who is going to vote for you if the 47% of the people who get free stuff from the government – you won’t lose 47% of your voting block. That’s never going to happen.
Brandon Laws: You bring up a good point. That’s why I run polls, not the Republican –
Jason Hartman: You got that right, because he’s not part of the big scam and conspiracy. Ron Paul is maybe the last honest politician, maybe his son, Rand Paul is, too. Very interesting. Brandon, I would just want to thank you for coming and co-hosting with me and helping me talk about these issues and talking through. It’s been great. Upcoming episodes, folks, we’ve got some callers that have called in. We got to get those on the air with some great questions. We’ve got a whole bunch of great guests coming up like we’ve in the past and of course, our Atlanta Tour is sold out, I mentioned that you, but we’ve got our Meet the Masters event coming up in January and it looks like we’re going to be back in Southern California for that one. We were thinking of doing it in Phoenix, but gosh, the hotel rates are just too high that time of year. So we’re probably going to be, for Meet the Masters, I think the third weekend of January in Irvine, California and stay tuned for that and enjoy all the free stuff because free is a philosophy that we believe in at jasonhartman.com. Brandon, again, thanks for joining us. I appreciate it.
Brandon Laws: It’s been fun, Jason. Thanks. (Top image: Flickr | puuikibeach)
The Jason Hartman Team
Transcribed by: Renee