Latest / Financial Survival Network / How Inflation Impacts Cash, Stock Markets, Investments and a Possible Housing Market Crash - John Grace #6046

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How Inflation Impacts Cash, Stock Markets, Investments and a Possible Housing Market Crash - John Grace #6046 · Financial Survival Network

0:00
But let's just recognize if it is the case that these guys are right,
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and by the way, they forecast back after the last economic crisis, that
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real estate prices would drop forty percent, I think the average was thirty four
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percent. So this ain't our first time to the rodeo. There wasn't inflation
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at that time, and what we're now so accustomed to inflation, we expect
0:23
it. But if you have an event like a great depression, what happens
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to inflation? You are listening to Carrie Letz's Financial Survival Network, where you
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get valuable information you just can't find anywhere else to thrive in today's trying times.
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You need the Financial Survival Network now more than ever. Go to Financial
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Survivalnetwork dot com and get your free newsletter and gift. Financial Survival Network now
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more than ever, And welcome you are listening to and watching the Financial survive
1:00
on network. My name is Carrie Lutz. I'm your host. As if
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you didn't know that already, well, John Grace is with us now Investors
1:08
Advantage Corporation. John Gott, You've been doing this since nineteen seventy nine,
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and you threw an alarming statistic at me one that I was not aware of.
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I've owned a number of homes, and even the first one I wasn't
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really that upset with. But eighty two percent of millennial first time home buyers
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have regrets. Yes, you know, we were joking like who has more
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regrets? Young people getting married? Are young people buying a home? And
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I'll bet you it's pretty close. Well, you're probably right, Gary,
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and you watch a lot of things, But I mean, how many times
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we talk about being an unparalleled, unprecedented, unusual times. How many times
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have we say any group of people buy house in a year or two later
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regret that purchase. And that means what eight out of ten millennials bought and
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now wish they had not. That's astonishing. And we all know when you
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move to your house, you're getting so happy making it just perfect. Right,
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Well, they're not there yet and they're trying to make it perfect.
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But apparently they think they paid too much and I think I would agree,
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And they didn't do their homework and the spear of missing out drove them to
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make a fast decision and not really, as I say, do their homework.
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But let's talk more about what we foresee for real state because this time
2:36
is certainly different, and just so that you know, Carrie, we are
2:39
thinking ourselves as canaries in the coal mine and busy beavers, doing everything we
2:46
can to prepare investors for the crash of our lifetime. Yeah, well,
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it's certainly coming, there's no question about it. It's just a question of
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if it's before the election or after. But it's certainly coming. You know.
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I'm looking at some of the regrets. The highest one paying too high
3:01
of an interest rate. So that's twenty two percent of the people. You
3:07
know, three years ago that didn't exist, right, nobody was paying too
3:12
much, you were paying too little. You just didn't know it. And
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the government was effectively artificially setting rates and therefore malinvestment all that good stuff.
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So maybe you were paying less of a rate, but then the home price
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had skyrocketed, so you're still paying a lot. But this other thing about
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not being educated about home buying, you know, that's really kind of a
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cultural thing, right. My parents owned their own home from the time I
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was born, you know, post World War two, worked hard. They
3:46
had three percent mortgages. Then houses cost like fifty thousand bucks. That was
3:50
an expensive home was easy to do. But the whole thing about home buying,
3:57
you'd think, John, with all the information on the internet, all
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of it literally at your fingertips, right down to valuing the home, which
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we never really had the ability to do in real time. You had to
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look at comps. The broker would give you like a book similar of sales
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that took place in the neighborhood and you'd have to figure out the comps and
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then you'd have it appraised for if you were getting a mortgage. So,
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I mean, how can people not be educated about this? What am I
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missing here? Well, yeah, I think you're hitting the nail here from
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the standpoint, what are we missing? And the various industries have made us
4:38
all believe when it comes to home ownership, that's about watching inventory and interest
4:44
rates and location, right, all very logical, But I think there's a
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fundamental piece to the puzzle that most of us do not see, and it
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has really nothing to do with our professions, and that's paying attention to the
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buying and selling be behavior of consumers based on age. So when boomers were
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standing in line literally to go out for their first home purchase when prices were
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much lower and so was income, they signed up for what sixteen percent thirty
5:15
year fixed loans and nope, there was no hurdle there, right, So
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if we look at the action in terms of age, what we can see,
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thanks to the Census Bureau your tax dollars at work. Thirty one just
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happens to be the age people tend to buy their first homes. Thirty one.
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By the way, it's now thirty seven. So that was happening over
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and over again. You could not go to a cocktail party around the holidays
5:40
in the early eighties without everybody there talking about what kind of house you had
5:44
in scrow and how your parents came up with the down payment. So forty
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one happens to be the age again. Nobody sees this. We all step
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up, baby boomer certainly did. I certainly did. To the McMansion.
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Forty one is the age we tend to buy our biggest home. So that's
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in the three books. So let's not just stare in the review mirror talking
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about well it's about this. No, let's look forward. Let's use the
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windshield, Let's use the GPS system. They do work fine, and see
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where are we're going from here? Two parts of this puzzle again, then
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nobody's really identifying, and that is we all want to believe we're living longer.
6:17
The truth is most of us are not. In fact, after COVID,
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the US was the only country where the life expectancy kept dropping. All
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the other developed countries kept going up by they gets north of eighty for UK,
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Canada, Japan. It's seventy six point four in America today. So
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look at the average folks, Homer and March Simpson making all of seventy five
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thousand dollars a year, and then look at your your family. Don't do
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the reverse. You've got to get it twisted. And why is that important?
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Wells we talked about as we see here, boomers were born between nineteen
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sixty four and forty six to sixty four. And we're gonna say that was
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all thanks to pitt Up demand, all these guys coming home from the war,
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right, gotta have kids, gotta have butt, all right, So
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nineteen forty six was when the first group started off. Donald John Trump turned
7:05
seventy seven, and just last year he turned seventy eight. This year we're
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just using him as a proxy. Seventy seven roughly is the average age of
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death. What happens at seventy eight. All we're hearing about is shortages when
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it comes to housing, right, that could suddenly turn into surplus. It
7:24
won't be soon overnight, but it will take it'll take a while. And
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by the way, from peak to trough and the last real estate upset this
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it was about six years to go from the top of the prices to the
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bottom of the prices. So it's like a slow moving train wreck. But
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regardless, we're dying off at seventy six seventy seven on average, and seventy
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eight, Carrie happens to be the age most consumers sell their homes. Really,
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yes, So what we're saying is, if you want to be ahead
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of the cur you want to be ahead of the herd of literally, because
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I can tell you if you're in the midst of a herd of cows,
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as I was in New Mexico trying to get my ego Merit badge right,
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then the cows just start oooping, yeah, right in front of you,
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and it's hard to avoid stepping in it, and the smell is just awful.
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So what you got to do is break from the pack, run ahead
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of the herd, and stay ahead of the herd and look over your shoulder
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because they will trample you. Okay, so this is what I'm saying that
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we've got to really look at what people are doing, not just getting high
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on the hope on the prices cannot continue to go through the ceiling. And
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let's just notice, Carrie, the two I'll ask you, what are the
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two states in this country that have the highest vacancies. I want to know
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the name of the state and the number of vacancies in that state. I
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know Florida is one of them. Yes, you're right, most people don't
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go there, and my inklin would be to say California, but I don't
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think that's it. Yeah, yep, stop there, go to the head
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of the class. No one has answered these questions correctly. Okay, now
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do you have a number for the two states? Yes, Florida is number
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one with the most vacancies, and Calibory is number two. One point six
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million in Florida something like that, about one point seven, Yes, in
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Florida. You're in the ballpark again. You go to the head of the
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class, and how about CALLI Kelly is like one point two bingo, you're
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one hundred percent correct. So While we're all looking at the news and getting
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excited about shortage, right, what we don't see is this is wait a
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minute, are there sixteen million vacant homes in America today? Yes? And
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is it true? Freddy Max says, in about ten years or so,
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there'll be another six to nine million vacant homes in America because boomers are going
9:52
to heaven, leaving the inventory. That suggests to me. Well, in
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fact, our research team Kerry, just to make it very blunt and research,
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says this will be a worldwide real estate crash after a global bubble.
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And we know that all bubbles bursts one hundred percent of the time. There
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will be nowhere to hide. It's not about your location, I mean worldwide.
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And remember just with COVID, what was that? Where did it come
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from? What's muhan? What's covid? Isn't that just happening over there?
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No, China's real estate will lead like the US led and the depression,
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this time the leader will be China. And don't be surprised to see their
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prices drop about seventy percent. Hours on average are likely to drop about fifty
10:35
percent, as little as fourteen percent in Nashville as high as seventy percent in
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Phoenix fifty percent on average from here. And that's why real estate will be
10:45
much slower to bounce than stocks. Stocks took, as I say, seventy
10:50
months to reach the bottom, and then the two thousand and eight crisis,
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real estate took six years. So what we're saying to folks is now might
10:56
be nobody can see the future. But it's not about being right right,
11:01
it's about being ready. And if you want to be ready, you want
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to think like you do when you're in Vegas. You've got a bunch of
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chips, what are they worth? If you don't see the cash here?
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If you have a bunch of equity, what is it worth you count it
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as cash? What is it worth to you that equity that you just love
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so much if it gets crushed by fifty percent or seventy percent, whatever it
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might be. If if you're fine with that, roll with it. Because
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I tried to say to a friend of mine two years ago, with twelve
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properties, a big realtor in town, all in the same area. I
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said, well, first of all, you have no diversification. It is
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all one asset type right two geographically let another earthquake occur in when you're gonna
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feel that for longer than a minute. Fact, yeah, but three,
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how about just taking your chips off, happier chips off the table. If
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you think the prices is going to go continue through the roof. And you
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know, by the way, people in the Midwest, happy prices of true
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people on the coast, delighted prices have qua drubled. But I said to
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her, as I will say to you, do you see a problem here
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when over the same twenty year period household income has only gone up one point
12:11
six times. Now do you think that's sustainable? So you don't have to
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be right. It is good to be ready. Take your chips off the
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table, put the popcorn in your lap, the money in your wallet.
12:24
Be like Warren Buffett. Don't be anxious to sell high and buy high.
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Warren Buffett sells high sits in cash for longer than a minute, and then
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he figures out what to buy in a year or two or three. And
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that's what we're saying. You get your cash in your pocket so that you
12:41
can catch the next wave. There's always going to be opportunity. But this
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wave is Christy. Yeah, Okay, I'll buy it. I'll buy it.
12:48
It's definitely risk involved anytime, you know, I've done so many times
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I thought I should just sell my house. It's doubled in price since I
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bought it in the twenty two twenty one. But then I have to move,
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all right, and that is both physically and mentally taxing. And then
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I have to find like another place to go to, right and the Yeah,
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I got a three percent mortgage, that's great, But I then have
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to go buy the other place for cash. I'll still have some cash left
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over. I would say, don't buy the other place at all. Yet.
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Yeah, I would say, go through the hell of selling and you
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know, relocating and paying. But I'm saying, pay five thousan dollars a
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month for rent if you want to play the game. If you don't care
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where prices go, fine, But let's just recognize, Carrie two parts to
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this puzzle. We can look at the US, and then let's look at
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Japan. After the Great Depression, most of us know, shocks dropped eighty
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percent, took about twenty twenty years, five years to get back to even
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Most of us don't know. New York real estate dropped seventy percent seven,
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all right, and it came back to even two in about four decades.
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Excuse me, yes, that's right. Let's recognize if we were adults in
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the you know, the start of the Rowing twenties and then the Great Depression,
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life expectancy was fifty seven. So was that tell me? And that's
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one of the drivers, if you will delight to have this conversation, because
14:18
what that tells me if we were adults, then the stocks. Oh and
14:20
by the way, this for the stocks to come back, it meant you
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could not do what sell a share? What you didn't any money for twenty
14:28
twenty five years, that's right, had to keep it there, just got
14:31
kicked in the assets eighty percent, and you have to sit in those same
14:33
assets for it to come back. But expectancy was fifty seven. So when
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it comes to New York real estate or the now that's the only index we
14:41
had at that time. Neither came back while we were still here. Could
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that happen again? It's happening right now in Japan. As you probably know,
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stocks in Japan peaked eighty nine. A year later, Japanese real estate
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dropped seventy percent. Sound familiar? From what I can tell right now,
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both appear to be about where they were. I was at thirty four to
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thirty five years ago. If you were forty now you're seventy five, you're
15:09
just getting back to even. And that may be, you know, a
15:13
precipice for another course correction. So yeah, I'm going to say, if
15:18
you want to play the game, this is a good time. If you
15:20
don't care about the prices dropping whatever they might drop and not coming back,
15:24
this might be a good time. Do you either just roll with it and
15:26
forget it, don't feel any great about it because you knew what you're doing,
15:30
eyes wide open, or take your chips off the table and let's go
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play elsewhere. Yeah, well, so where do you put your chips?
15:37
Gold? Well? From now, there's nothing wrong with cash. I mean
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again, let's look at Warren Buffett. He's not anxious when he sells,
15:46
whether it's a profit or loss. He takes his chips off the table.
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And Carrie, let's notice that what he said recently is worth making sure we
15:54
talk about. What he said was Oh yeah, Berkshire Hathway. The holdings
15:58
are in the neighborhood of trillion dollars that's a lot of money, but if
16:03
we had limited our losses, the value would probably be twice as much.
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We don't talk about how to limit losses and my securities industry write my profession.
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What we tell you and everybody else is you get to live with the
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losses. I'm sorry. Let's focus on limiting the losses, not try to
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live with the losses. You know, let's be like the animals after a
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hurricane. They don't try to ride it out. And it's not who's cute
16:32
or who's well dressed, or who has you know, is very likable.
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We're gonna follow the smartest animal to high ground. Let's get out of the
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way, let this thing pass, and then come back if we choose to,
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but don't try to just Oh we're gonna just ride this one out,
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Carrie, give me a bottle. I'll be fine. Yeah, kind of
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like I don't know if he's caught. During the solar eclips, they animals
16:56
at the zoo, they went absolutely crazy there, Yeah, right, absolutely
17:00
crazy. They didn't know what was going on, and then they settled down
17:03
after a little bit. Yeah, it was it was really insane, you
17:07
know. Yeah, all right, Okay, so we got the idea here.
17:14
So cash, But then, John, what about inflation which is destroying
17:18
the value of cash as we speak here? You know, they're lying about
17:22
the inflation rate. The federal government has committed to made a lot of promises
17:32
that they're not going to be able to fully keep all these entitlements. What's
17:36
the future of cash? Well, cash is just a temporary holding position,
17:41
all right. There are other places where you can have consistency, where you
17:45
might have more measured growth. It's not just being on the roller coaster for
17:49
the peaks and the valleys. You know that for some folks that's just a
17:52
little bit too exciting. And most of us still really recognize what kind of
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loss we can accept. We haven't really done that, and it was on
18:00
the bottom falls out that we go. Oh. I didn't want that to
18:02
happen and not recover soon enough. But let's just recognize if it is the
18:07
case that these guys are right, and by the way, they forecast back
18:11
after the last economic crisis that real estate prices would drop forty percent. I
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think the average was thirty four percent. So this ain't our first time to
18:18
the rodeo. There wasn't inflation at that time. And what we're now so
18:25
accustomed to inflation we expected, But if you have an event like a great
18:30
depression, what happens to inflation. It's gone evaporated suddenly. All prices,
18:37
including salaries, have come down. Right. But now for those folks who
18:41
have a fixed income, if prices have come down, your purchasing power has
18:47
gone up. So if this is in Michio Kaku, I'm sure you know.
18:51
Astro physicists had a pleasure of talking with him. He says he studies
18:55
in civilizations and depressions in his studies have the occurrence that happens just about eighty
19:02
years every eighty years, just like clockwork. So we were on track for
19:04
number two. And you know, all the wonderful election officials didn't want this
19:11
to happen on my watch, So we put tape on the pig, lipstick
19:15
on the pig, kick the can down the road. We would have worked
19:18
through it by now, and you know, been a lot less as old
19:22
as we are now if it had happened in two thousand and eight. But
19:26
this is part of the problem. We don't feel the pain. We don't
19:30
want to feel the pain, so we'll do anything we can to make the
19:33
pain go away. Not much different than when we're hooked on cocaine. Right,
19:37
we'll do anything we can to keep from feeling the pain. But either
19:41
you're going to die or you're going to get well. But this is not
19:45
sustainable. So I'm not really worried about inflation tipporarily, yes, but over
19:51
the long term, if we see a serious recession, or if we have
19:55
kicked that depression can down the road and all of a sudden it shows up
19:57
again. And and as I say, if China's going to lead us to
20:02
a seventy percent loss in their real estate, that's going to be contagious.
20:06
I would not be surprised to see everybody say, oh no, we can't
20:10
have a recession. Then you're never ready for a depression. But as I
20:12
say, it's not about who's right, it's about who's ready. And we
20:17
need to look at all of these things from different angles to figure out how
20:19
we might play the game. All right, So I'm just going to take
20:23
issue with one thing that you said about China. Yeah, seventy percent,
20:29
I think you're being wildly optimistic. I think you're looking at ninety to ninety
20:33
five percent because the uniqueness of that market is that you know, they don't
20:41
maintain stuff there. I mean, we'll see. Yeah, they got two
20:48
food drag construction. I don't know if you've read about that. They have
20:52
sixty five eighty million bacon homes. But this is what I'm saying. Is
20:56
it seventy is it one hundred? I don't really care. That's a buckle
21:00
no one's prepared for and we have no tools with which to deal with that.
21:04
But you and I we're prepared for it. I've seen this thing coming
21:10
for years. You're right, you know, but I think the world's waking
21:15
up. But it is the world's largest asset class YEP. It's going to
21:21
lose ninety percent of its value because they've got the banks are out of money,
21:27
the governments are out of money there, the businesses are closing up like
21:32
one after the other. Even Tesla's got issues there now, and they were
21:37
like the stellar company, the most profitable company in China in many respects.
21:42
So yeah, it's all I would say is, let's look at Wuhan and
21:48
COVID when we said two months into it, we'll be back to normal.
21:52
To your point, whether it's seventy or ninety, I really don't care.
21:55
What I am saying is it's not just going to be limited there, all
22:00
right, Okay, Right now, Japan has eleven million vacant homes and no
22:04
mirror. Security says that number could very well double or triple in the next
22:10
ten years. So all I'm saying is, we're all in this together.
22:12
We're drinking the same kool aid, the same water, you know, we're
22:15
breathing the same air, we're flying the same Boeing airplanes. We're all in
22:21
this together. So let's just out point fingers and go, well, it's
22:23
happening over there, but I can't see. I mean, I was talking
22:26
to a good friend of mine. I said, look, here's a San
22:30
Francisco condo that's sold for a million dollars in twenty nineteen. It just sold
22:34
for five hundred thousand. He said, Ah, that's San Francisco, and
22:37
I would never move there. I said, don't do that. Don't just
22:41
say I don't like it there. So I have to pay attention. Forty
22:42
four point five percent of the homes just in the last year have that's forty
22:48
four percent loss, I'm sorry, in the homes in California in the last
22:52
year. March twenty third of March twenty twenty four. But forty four point
22:56
four is a loss across the country. It's happening right here, right now.
23:00
It's not just over there. And that's what I'm saying. You know,
23:04
figure out if you want to try and weather the storm, how you
23:07
want to play weathering the storm as opposed to trying to live with it.
23:11
It could be quite disastrous. I could not agree with you more. And
23:17
you know I always love the headlines experts disappointed Inflation exceeds experts expectation. Who
23:26
are these experts? You know, well, you have to be like a
23:30
three year old to not understand this, or you have to represent a company
23:34
that can't withstand that kind of novelty. In terms of the concept, we
23:38
want everybody to keep buying our products and services, right. I think that's
23:42
what you see too. But let me say this real quick carry because we
23:45
talked a lot about real estate, let's talk about the stock market. And
23:49
again, we don't want Most people have their money in passive instruments. They
23:53
stay five percent cash, ninety five percent invested. We prefer for people who
23:59
are concerned about declines, something we can't do with real estate. We can
24:02
do with like retirement accounts eleven thousand people a day's turning sixty five. You
24:06
have to have your requirement and distributions. Then it becomes more important for us
24:11
to see what we can do to limit our losses. You know, you
24:14
have to take withdrawals that increase every year for the rest of your life.
24:17
How can you stomach another We've had two fifty percent losses in the same decade.
24:22
How could you stomach another one? Well as you're taking withdrawals. So
24:26
twenty twenty two, twenty twenty two, look to see how your account did
24:30
two thousand and eight. Look to see how your account did. Are you
24:33
better prepared if either of those events happen again? Was your loss over thirty
24:37
seven forty percent and eight? I'll bet it was. Twenty twenty two,
24:41
the mark was off twenty to thirty. How did you do? If you're
24:45
off let's say twenty percent in two thousand and eight or less, you might
24:49
have gotten back to even in a year or two. The no load mutual
24:53
funds all stocked state five percent cash, ninety five percent invested, took four
24:57
to five years to give back deep it. Twenty twenty two, let's look
25:02
at that again, how did your account do markets were off twenty or thirty?
25:04
If you were off twelve, ten, eleven, nine less than that?
25:08
Right? Remember what Buffett is making famous, at least in my book,
25:12
Looking at how to limit your losses keeps you in chips. Yeah all
25:17
right, well John, Hey, a lot of the sage advice and wisdom
25:22
there. For sure. You need to actually get people to do it.
25:26
Those not the easiest thing, is it. No, it's after the damn
25:33
breaks that we go. Oh my god, only if only only I had
25:38
listened to John. Yeah, this is too late. Just tell us where
25:45
we connect with you, how we find you on the web? Yeah,
25:48
yb poor? Whybe p o R Investors Advantage right in Westlake Village, happy
25:55
to talk to folks who want to see what they can do to limit their
25:57
losses and prepare for I hope we're wrong, but we are preparing for a
26:02
crash of our lifetime. Yeah, couldn't agree with you more. Forewarned is
26:07
forearmed? Got a question for John or myself? Should be an email KL
26:11
at Carrie Lets dot com. Don't forget to go to the website Financial Survival
26:18
Network dot com. You'll find a link in the show notes to John's site,
26:22
and while you're there, sign up for your free newsletter. John always
26:26
appreciate you coming on. We'll talk to you again real soon. Look forward
26:30
to it. Carrie, thanks so much, thanks for listening to Carrie Letz's
26:33
Financial Survival Network, your solution to today's trying times. For the latest,
26:38
go to Financial Survivalnetwork dot com. Financial Survival Network now more than ever,