Latest / Mortgage Marketing Radio / A Conversation About Financial Markets, and the Future of Fannie & Freddie with Dan Rawitch

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A Conversation About Financial Markets, and the Future of Fannie & Freddie with Dan Rawitch · Mortgage Marketing Radio

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  In today's highly competitive mortgage industry, building profitable relationships with
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  the real estate agents is essential for success.
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  You'll find actionable insights and practical tips that Chris used to close 36 million
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  Go check it out right now, visit LOKestudy.com and download your free copy today.
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  Hey, listeners, what's up, Jeff Zimper, your host for another edition of Mortgage Marketing
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  So here we are, another episode, and listen, by now you know that I'm a big believer in
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  leaving with education, an educational platform.
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  Everyone's talking about differentiation, everyone's talking about value proposition,
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  a lot of people talk, talk, talk about it, what are you doing about it?
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  How do you actually implement that in the real world on a daily basis?
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  There's lots of different ways to do that.
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  I'm going to tell you about one particular way that I'm a fan of.
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  Why?
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  Well, yes, it's because of one of the things we provide here for Mortgage Marketing Institute
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  and that is our Mortgage Marketing Pro membership.
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  What is it?
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  It's an online turnkey library of Zoom ready to go, templated classes that you teach
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  Hey, when COVID goes away and you can get back face to face in person meetings, you'll
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  do it that method as well.
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  But for now, we are working with loan officers to help them never make a call call again.
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  so you can just copy it from there.
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  Want to learn more?
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  Go to MortgageMarketing.pro.
• 3:17
  Alright, next up, my special guest for this episode.
• 3:21
  This episode, I had a blast, I just finished recording it, and it's not my usual episode
• 3:26
  because we talk about a lot of different things, but I thought it was one of the best candid,
• 3:30
  kind of authentic, real conversations that I've had in a long time.
• 3:34
  My interview is with Dan Roch and Dan has been in this mortgage financial space for many,
• 3:40
  many years.
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  As the guy who does the mortgage rate updates and rate watch through mortgage coach, and
• 3:46
  so I've been following Dan for a number of years, my buddy Dave Savage, a mortgage coach
• 3:49
  said, hey, you should interview Dan, boom, here we are, we did, and it was an amazing
• 3:55
  conversation.
• 3:56
  And if you don't know Dan's background, he was a bond trader at Bear Stearns in the
• 3:58
  80s.
• 3:59
  He was the founder of DataFacts, the fourth largest mortgage credit reporting firm in
• 4:03
  the nation that was sold to TransUnion, he's the founder of RPM Mortgage, he's a CEO
• 4:09
  of Finet, a NASDAQ traded company, which at one point reached a billion dollars in market
• 4:14
  at CAP.
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  As I said, he's been the host of rate watch since 2008, right?
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  And what rate watch is, if you don't know, it provides economic and technical analysis
• 4:23
  on the bond market.
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  It goes on and on and on.
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  He's got a newsletter.
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  He's got a platform called University of Options, which is learning how to trade options
• 4:32
  the right way.
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  And the best part of all of this is all the success that Dan's got, still humble, great
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  guy, right?
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  The guy you'd want to sit down and have a beer with, a coffee, whatever it is, and
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  it's completely transparent, authentic, and willing to share everything he possibly
• 4:48
  can.
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  So we talk about what's the future of interest rates?
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  We talk about the mortgage market, the stock market, right?
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  What the future looks like for inflation versus deflation.
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  We talk about Fannie Freddie, all kinds of cool stuff.
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  I just hope you enjoy this conversation as much as I did.
• 5:02
  If you want to connect with Dan Moore, we're going to put links to it in the show notes.
• 5:06
  The main place to connect with Dan right now is UniversityofOptions.com.
• 5:10
  If you're hearing this and you're like, oh, I want to learn how to trade options better,
• 5:13
  that's the place to go.
• 5:14
  I don't get nothing for that.
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  I like to bring people, good people, to bring awareness, to good people that are doing
• 5:20
  good things.
• 5:21
  So if that's for you, go check it out.
• 5:23
  So without further ado, let's get into this week's show.
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  Hey, Dan, welcome to the show.
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  Thanks for having me, Jess.
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  I'm excited.
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  Awesome, man.
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  You're making time from your remote undisclosed location and hopefully the internet holds up
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  for us.
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  So listen, I know you obviously from Dave Savage, mortgage coach, you've been providing
• 5:42
  kind of rate watch updates and stuff for years.
• 5:44
  You're clearly intelligent, informed, and you've been in this space for a long time.
• 5:49
  So for those that may not know who Dan Rawich is, give us the brief bio.
• 5:53
  Who are you?
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  What are you all about?
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  Well, I'm old, I'm 61 years old, three kids, all grown, youngest is 21, four grandkids,
• 6:06
  and we travel extensively.
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  And my passion is just really digging down and understanding the financial markets, the
• 6:16
  economy, always been my passion since college, always been a student of the economy.
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  Well, I understand what you say, you hate that and don't like being put on the spot.
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  So let me give you the brief resume and I'll be leaving a couple of things off.
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  But you were a bond trader for Bear Stearns in the 80s.
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  That must have been fun.
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  Some stories there.
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  Founder of data facts, the fourth largest mortgage credit firm in the nation sold the Trans
• 6:39
  Union, founder of RPM mortgage, sold to finite holding, CEO of finite and as decorated
• 6:45
  company, which reached a billion dollar market cap, host of rate watch as we said since 2008.
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  And you still have your podcast avoiding the storm?
• 6:56
  I'm not as good as you are in the court of my podcast.
• 6:59
  I'm more or less replaced to jump with my newsletter called Swamp Enomics.
• 7:03
  Okay, Swamp Enomics.
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  And where would I find that if I wanted to subscribe to your newsletter?
• 7:09
  On my website at universityofoptions.com.
• 7:11
  Cool.
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  I'm going to put a link in the show notes.
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  We'll also talk about some of the other things you're doing there.
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  But let's face it, the audience is primarily made up of mortgage professionals, some real
• 7:21
  estate professionals, you know, we're here coming into an election time of year.
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  It's I mean, dude, did you see this coming at all in 2020 with housing and interest rates?
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  I did.
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  You know, I'm excited to say that because it's easy to say that, but you know, everything
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  I say is recorded and it's out there.
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  So last year, actually in 2018, I gave it talk and I said that 2020 in 2021 would be
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  the best years the industry had ever seen.
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  And I think that that carries in the 2022.
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  And then again, I don't mean to sound like a normal.
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  I also said that I thought the economy would get into severe trouble.
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  This was before the pandemic and that the stock market would crash.
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  But I said, I don't even understand why I'm saying this back then.
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  The housing market will dodge the economic bullet and that's never happened.
• 8:13
  Housing has always led us into recession and out of recession.
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  But the pent up demand was so extreme and the inventory was so low and the millennials
• 8:21
  were getting of age by homes and as old guys were downsizing and it just made sense to
• 8:28
  me that housing was going to really be on fire.
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  OK, and so you mentioned this looks positive into 2021 and even 22.
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  Now it's interesting because David Stevens just came out with an article, I haven't read
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  it yet.
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  I don't know if you saw that.
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  I read it.
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  Yeah.
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  So yeah.
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  So good.
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  So by the way, for those that don't know, what it basically said is he's foreseeing
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  a uptick in rates in in 2021, right?
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  Right.
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  So why do you feel different?
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  Yeah.
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  So first, I want to say, you know, I met him.
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  I don't know, Dave, but I would say that he's a class act and it's, it's, it's, so
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  anything that I say is not, not controversy toward Dave, it's just, I think he missed
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  some really important things.
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  So first of all, what I agreed with, and I'm going by memory, there were five things.
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  What I agreed with was the 50 basis point toll that the agency suddenly dropped on us.
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  That's fact.
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  That's going to affect rates a little bit.
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  The Banny and Fred being freed from conservatorship and becoming, you know, standalone public
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  companies, they're going to have to do more to make more.
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  And so that will raise the guarantee fees, probably.
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  Hold on.
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  Do you do even think that that's going to happen?
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  I think it's going to eventually happen.
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  I don't see it happening in the next 12 months.
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  Well that, so, so conversations just to take a, conversations I've had with other people
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  around that before, about them becoming public companies means that is going to impact
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  interest rates as well.
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  Yes, because they'll be like free enterprise, capitalists, and they'll probably try to
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  raise the guarantee fees.
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  And you know, that'll be interesting to watch.
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  And I think that the reason I think that the government better be real careful about letting
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  go of them is you've got Fannie and Freddie competing with one another and there's nobody
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  else.
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  I mean, you could say FHA, but it's a different animal.
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  And so you've got these two guys, it's almost like a cartel in some ways.
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  I'm sure they don't call each other and say, hey, I'm going to raise, are you going to
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  raise?
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  But that's exactly what happens.
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  If Fannie may raise a 10, we have Freddie Mac raises 10, they'll just say their market
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  adjustments.
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  So you could see these two just taking, taking things up too much.
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  And so there's going to have to be some controls in place.
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  Yeah, and then how does that go to the great, like the affordable housing for everybody
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  and to the sense they're really a quasi public slash government entity right now.
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  And there's so a lot of benefits that can come from that.
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  And then they become about pure profit.
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  Well, does that then reduce the creative, the lending possibilities for those that might
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  otherwise not qualify under normal situation?
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  I don't know if that makes sense.
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  But it doesn't to me.
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  So I'm just going to edit that out.
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  Yeah, it does.
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  But go ahead.
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  What did I just say?
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  What did I just say?
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  I have no idea.
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  Take it from there.
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  You boom.
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  Is this a good thing for consumers, ultimately, for them to be private or public?
• 11:39
  Right.
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  No, how could it be good for consumers?
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  The only the only win here for the consumer, in my opinion, if I mean, if you have no governmental
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  control at all over to capitalistic companies, you know, trying to please their shareholders,
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  fat in the CEO's pockets.
• 12:00
  I mean, it doesn't it doesn't end well.
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  But unless you take a penny Mac or somebody like that that's gotten massive size, who
• 12:09
  knows?
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  Maybe UWM going public.
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  I'll show your podcast on that one.
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  It would take such an amazing amount of capital, but somebody like that is going to have
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  to be able to go to the capital markets with that kind of size and at least be a threat
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  to Fannie and Freddie.
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  Instead of a customer, they got to be a competitor.
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  That's how we're going to keep rates down.
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  Let me ask you a question.
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  That's exactly question.
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  Yeah.
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  And this make me maybe sound like I'm an, you know, I don't understand it, but here it
• 12:36
  is the end of the long week and it's the afternoon and, you know, why, why do they exist
• 12:42
  in the first place, Fannie and Freddie?
• 12:45
  So they came in to play going off memory, but I believe it was in the late 60s early 70s.
• 12:54
  And banks were lending too much of their capital out and so the, in the back then they were
• 13:02
  savings and loans and that was pretty much the only way to get money.
• 13:06
  And as rates started going up, the savings and loans just kept raising rates and consumers
• 13:12
  didn't have access to capital.
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  So that's really, they were, they were born.
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  I feel, I feel ignorant here because I used to tell you the president and the time and
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  all that stuff, but, but they were created specifically for as consumer advocates to make
• 13:26
  sure that consumer always had capital to purchase homes.
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  Interesting.
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  And which kind of goes to what I was alluded to earlier.
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  So if we take that away as these consumer advocates, then it becomes, put the hands of
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  the companies that are only there purely for profit.
• 13:40
  Yeah, and I gotta admit, Jeff, I, I hadn't thought that through as much as I, you just made
• 13:46
  me think it through because I was just thinking, what I said, you know, I, maybe 20 to 30
• 13:51
  basis points will get added on to price just a fat and their pockets a little bit, who
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  cares, 20 to 30 basis points is not going to be felt in rate much by a consumer.
• 14:00
  But if they really become pure, you know, Amazon or somebody like that and trying to raise
• 14:05
  their share price and please their shareholders, anything is possible.
• 14:09
  And then, yeah, like we saw with the, the intent to add that half a point, you know,
• 14:14
  a fee, if you will, thankfully our industry kind of rose up and wrote like 80,000 letters
• 14:19
  or whatever it was to get that at least postponed, but who is our, you know, watching out for
• 14:25
  the consumer?
• 14:26
  Like you say, I mean, what's to prevent that from happening again?
• 14:30
  Yeah, and I won't get too nasty here.
• 14:35
  The guy that's heading up F H F A. Yeah.
• 14:40
  He's supposed to be watching the consumer.
• 14:41
  Yeah.
• 14:42
  That's the guy that's supposed to be watching out for consumers.
• 14:44
  And then he does a middle of the night, frigging back door, half a point hit with no lead
• 14:50
  time, no warning, no nothing.
• 14:53
  Yeah.
• 14:54
  And then the whole thing, when, when, when, when, when, when, when, when, when, when
• 14:57
  lenders were on their knees with, with warehouse issues and all that stuff, you know, only
• 15:03
  had to do is just say, we're going to offer servicers some kind of a bailout if you
• 15:07
  take care of the borrowers and it just was unwilling to do anything that was necessary
• 15:11
  at that time.
• 15:12
  Wow.
• 15:13
  Interesting.
• 15:14
  I don't know why he has a job.
• 15:15
  I really don't.
• 15:16
  You should have a job.
• 15:17
  I wouldn't want that job, man.
• 15:19
  Too much pressure.
• 15:20
  All right.
• 15:21
  So very interesting conversation, you know, the future of the mortgage industry and, you
• 15:29
  know, when they stop, again, I'm not as tied to the market as other people.
• 15:33
  But look at their, their largest purchaser of mortgages, right?
• 15:37
  So what happens when that stops?
• 15:40
  The business would be on its knees.
• 15:42
  I mean, there, there's just no other capital out there.
• 15:45
  Look what happened to jumbo loans during that meltdown in February, March.
• 15:50
  They, they, they evaporated because there's no secondary market for jumbo loans.
• 15:55
  There is, but it's so sensitive in terms of investors buying those, those securities.
• 16:01
  And, you know, the, the pools of loans are made, then they have to get rated by the
• 16:05
  rating agencies who are probably afraid to put any kind of rating on a pool of mortgages
• 16:10
  when the industry is, you know, melting down.
• 16:13
  And then who's going to buy those securities?
• 16:15
  If Annie, if Annie was the only game in town, we, we all would have been really in big
• 16:19
  trouble.
• 16:20
  Yeah.
• 16:21
  Exactly.
• 16:22
  And so since we've been talking, I just kind of pulled up the history there and everything,
• 16:25
  just the additional context from, I'm trying to approach this from the layman's standpoint.
• 16:30
  But basically, what we're talking about is liquidity to be able to continue loaning
• 16:35
  money.
• 16:36
  It's ultimately what you're talking about.
• 16:37
  And if we don't have that, Fannie and Freddie liquidity, so mortgage companies could continue
• 16:42
  to make loans available because they don't want those on the books, right?
• 16:45
  Because I mean, back in the day, we had mortgage-backed securities, right?
• 16:48
  Remember how fun that was.
• 16:50
  Yeah.
• 16:51
  Well, I'm just a little bit of history, so when I worked for Bear Stearns after, you
• 16:56
  know, being a bond trader, I became what was called an asset liability manager.
• 17:02
  And I worked with the major banks to help them balance their assets and liabilities.
• 17:08
  So in other words, if I have $100 million of mortgages at 5%, but I'm paying my income
• 17:18
  of five, but I'm paying my depositors 10%, that's not very sustainable.
• 17:25
  This is exactly what happened in the 80s.
• 17:27
  So these agencies had billions and billions of dollars of 5% mortgages, and then 79,
• 17:33
  80, 81, they're paying out what's 17% on the T-bills.
• 17:36
  So it was a disaster.
• 17:39
  I mean, to me, it was some of the best years of my life, because we were buying those things,
• 17:43
  securitizing them and creating liquidity for the banks that way.
• 17:48
  But the banks were selling those at huge discounts.
• 17:50
  They were selling a portfolio of $1 billion of mortgages, and maybe 50% discount, because
• 17:56
  it was 5% and a 12% market, so that's, without that liquidity, it's a problem.
• 18:03
  And so, sorry, my point is, we don't want banks to go back and be the only of the primary
• 18:08
  lender, because if they start taking them in a bunch of three or four percent loans and
• 18:11
  rates do go up, the whole banking industry will collapse.
• 18:14
  Who does banks care about?
• 18:17
  Banks.
• 18:19
  They're profits.
• 18:20
  And of course, let's not forget that during the COVID-19 pandemic, Fannie and Freddie are
• 18:25
  the ones that put the moratoriums on foreclosures and evictions for that time period, which
• 18:30
  gave people breathing room.
• 18:33
  So I think, yeah, we need somebody to be looking at.
• 18:35
  It's funny, because it's like, who's policing them, right?
• 18:39
  It reminds me of this, the documentary I mentioned to you a moment ago, which is the social
• 18:43
  dilemma, which for everybody listening, if you haven't watched it yet, please watch it.
• 18:47
  I know I posted it on my social, but social dilemma on Netflix.
• 18:49
  Anyway, the point being is, you've got these algorithms that are influencing the whole
• 18:54
  premise that you'll find this funny, the kind of the premise of the documentary side,
• 18:58
  what do we call this tangent here?
• 19:00
  But you'll love this.
• 19:01
  You'll love this.
• 19:02
  So the premise is you've got basically 35 white guys that live in one state that all
• 19:07
  have these Stanford degrees, and they're all frigging math wizards and stuff, and they're
• 19:12
  influencing what two billion people do at scale, right?
• 19:17
  And so the whole issue, the whole challenge is, is who's regulating these companies?
• 19:23
  Who's policing these companies of the influence they're having?
• 19:26
  And you got Zuckerberg saying, well, we just need more algorithms, you know?
• 19:29
  I was like, let's see how to do it.
• 19:32
  Where was she learning?
• 19:33
  Yeah, exactly.
• 19:34
  And I've never really been a regulation guy, but after seeing this in similar to how
• 19:38
  we have regulations in the mortgage and financial sector for good reason, because if you don't
• 19:43
  rein that in, right, there's some bad kids who like to do some bad stuff, man.
• 19:49
  Yep, agreed.
• 19:50
  100% agreed.
• 19:51
  By the way, while you were doing research, I was too.
• 19:55
  So Freddie Mac was formed in 1970.
• 19:58
  Fannie Mae was formed in 1938, and that was, as I recall, that was the white Eisenhower,
• 20:04
  because again, he saw a big problem coming out of the depression.
• 20:07
  You know, the banks didn't have liquidity post depression to lend money.
• 20:11
  And you know, guys coming home and fighting the war wanted to buy homes.
• 20:15
  Yes.
• 20:16
  Exactly.
• 20:17
  So I jumped on Investopedia, I'll put a link in the show, and that's what the hell if
• 20:20
  anybody wants to read some more stuff about Fannie Freddie, because it's really interesting.
• 20:25
  And it even goes back into the 2008 financial crisis and the role they played in that go
• 20:29
  to bad in that discussion.
• 20:33
  But that's a whole nother discussion.
• 20:35
  Okay, so you are, I don't know how I would give you, I'm trying to think of a name to
• 20:39
  give you, you know, the interest rates, the scientist, I don't know, whatever it is, but
• 20:44
  you're pretty damn smart when it comes to rates, mortgage markets, stock markets.
• 20:49
  You're a guy who does a lot of trading, right, in the stock market daily, are you a day
• 20:54
  trader?
• 20:56
  The real term is probably be swing trading.
• 20:59
  Most of our positions were in for a few days.
• 21:02
  We're not in the same day, all options, which is like stocks, but it's a little different.
• 21:09
  And I say if you had to call me something, Dave calls me the mortgage coach economist,
• 21:16
  which sounds really fancy, but I would say I'm more of a market analyst.
• 21:19
  I mean, that's what I consider myself, I study, I analyze.
• 21:24
  Yes.
• 21:27
  How do you think, or to what degree do you think a mortgage professional, and I'll underline
• 21:32
  professional, and you and I know what we mean by that, meaning somebody who's not working
• 21:37
  in a call center, just the phone jockey, right, but saying, giving professional advice.
• 21:43
  How important is that you think today to understand markets to be a professional?
• 21:49
  Well, so, long wanted answer, but it's okay.
• 21:53
  Yeah, please.
• 21:54
  When I founded our pay mortgage, it was 1989, and rates were still around 11%, and I had
• 22:02
  just come off of Wall Street, and so I still had all this stuff in my brain, and I could
• 22:08
  not not be looking at screens.
• 22:10
  And so it was very expensive, but I got something called a tellerate terminal, because we didn't
• 22:16
  have the internet.
• 22:17
  Trade and email.
• 22:18
  We had carbon paper.
• 22:21
  So, I had that in my office, and it just made me feel good to see what rates were doing
• 22:28
  with the bond market was doing, and when I started recruiting loan officers, they saw
• 22:34
  it over there, and the fascination they had was kind of mind blowing to me, and I didn't
• 22:41
  realize there was this sort of dark cloud around, not necessarily dark cloud, but behind
• 22:46
  the curtains, most capital market guys, the mysterious and a lot of problems.
• 22:51
  They're fascinated by that job, and so I began as part of my recruiting, saying, I will
• 22:57
  teach you everything I know about the bond market, and we recruited something quite a,
• 23:01
  well, yeah, I think you probably know this as a RPM mortgage, even today, they're a very
• 23:05
  successful company, and I think that had a lot to do with its roots.
• 23:09
  We ultimately took that tellerate screen, and we put it in the main object part of the
• 23:15
  lobby, not the lobby, but like the open office where the cubes were.
• 23:20
  When loan officers would meet the client in the lobby, they would walk them to their office,
• 23:24
  and they'd go buy the screen, and they would say, let me show you what we look at, so
• 23:30
  we can really advise you in terms of when is the right time to lock your loans, and
• 23:35
  I try to teach them, don't try to sound smart, don't try to use big words, don't use
• 23:42
  jargon, you think that makes you sound smart, it makes you stupid, if you can't speak the
• 23:47
  same language as who you're speaking to, and probably the people you're speaking to
• 23:51
  are smarter or smarter as you, but they don't know that, so why would you just talk about
• 23:56
  that?
• 23:57
  So, we taught them how to speak real simply about the charts and bonds, and how bond
• 24:02
  prices work, and I don't know how much the borrowers understood, but what's that saying,
• 24:08
  Jeff, people won't necessarily remember what you said, but they'll remember how you made
• 24:12
  them feel.
• 24:13
  Exactly.
• 24:14
  So, I think that when they sat down with that loan officer, and our guys always were
• 24:17
  studentized, it's pretty old school stuff, and they felt like they were really sitting
• 24:21
  with a financial advisor, they really understood the markets, and what that really did, in my
• 24:26
  opinion, was, because it was always frustrating for a loan officer to tell a bar, I think
• 24:31
  you should lock your loan, and the bar was always like, my neighbor or my uncle, Joe's cousin
• 24:36
  told me, no, it's going to go down to whatever.
• 24:39
  Remember, we went through that terminal, and we looked at that range, and we're crashing
• 24:44
  through that range rate, oh yeah, and so it's, I think it really gave him credibility
• 24:50
  when it went time to lock, so that's along with an answer, going way back then, we built
• 24:55
  the company around that, recruited around that, our loan officers, and you know, you can
• 25:01
  see what Barry Habib has done, you know, about the time I was doing that with RPM, Barry
• 25:05
  was ahead of me, you know, he was already on CNBC, and he was a mortgage guy, you know,
• 25:12
  talking about the mon market all the time, so I feel like it's really important for them
• 25:17
  to understand it.
• 25:18
  I'm glad you made that point, you made how you make them feel versus what you said, because
• 25:23
  what you want them to feel is confident, right, number one, in choosing you, confident
• 25:28
  that I'm making the right decision, and to get into a little brain-based stuff here,
• 25:33
  you know this well, as people make decisions emotionally, but back them up with logic.
• 25:39
  Yep, and so you're covering both sides of the fence there.
• 25:44
  Yep, and then also just in terms of dripping on people, dripping on real estate agents,
• 25:52
  dripping on borrowers, a quick screenshot of the chart with a quick blurb on, hey, today
• 25:58
  durable orders came out, they were disappointing, we're seeing a nice bounce in rates, we
• 26:03
  should talk Monday about locking while we have this bounce.
• 26:07
  That's meaningful, that's not like, here's my aunt's cookie recipe in a newsletter, you
• 26:12
  know.
• 26:13
  Right, right.
• 26:14
  I mean, people don't love that, come on, man.
• 26:17
  I like it, I like cookies.
• 26:19
  I need another version of banana bread myself, you know.
• 26:25
  Incredibly high value.
• 26:26
  Hey, you know what, I'm funny, I'm thinking, did we ever cover the why you don't think
• 26:32
  rates will rise in 2021, like David Stern's, Steven's does?
• 26:35
  No, we didn't actually finish that.
• 26:37
  All right, let's finish that.
• 26:39
  You brought up that fan-y thing and it went down a rabbit hole.
• 26:42
  It came very top-of-oaking.
• 26:45
  So those are the two things that I think he's right about, the agencies, if they do stand
• 26:51
  along, they will probably raise the G fees, the guarantee fees at Lenders Pay.
• 26:56
  And then we already have this 50 basis points, but that's already a known thing.
• 27:01
  Where I think he really got it wrong is he talked about the Fed, not needing to continue
• 27:07
  to buy bonds, I couldn't be more and more long.
• 27:11
  In fact, just now before this call, I was looking right now, the Fed owns 18% and they're
• 27:18
  buying it like crazy of something called TIPS.
• 27:20
  These are treasury bills that are adjusted for inflation.
• 27:25
  They're buying them so fast, they're just controlling the market.
• 27:28
  That's why bonds are trading so incredibly thin.
• 27:31
  I personally think that were, I actually, one of my newsletters was titled Winter is
• 27:35
  Coming.
• 27:36
  And it was a knockoff from Game of Thrones admittedly and I had the picture on the
• 27:40
  screen with guys.
• 27:41
  I probably get sued for that, but hopefully I'm too small.
• 27:47
  So Winter, to me, is a season of extreme deflation and I don't understand where this comes
• 27:55
  from.
• 27:56
  But there's this belief out there that the debt that the Fed is creating and this huge deficit
• 28:02
  is inflationary.
• 28:03
  It's the opposite, it's deflationary because let me ask you this, if you, I've been there
• 28:11
  where I had too much credit card debt, I didn't have enough money, did I go on and spend
• 28:16
  a lot of money when I had all this credit card debt and car payments and income was
• 28:21
  not enough to pay my bills?
• 28:23
  No, that's deflationary in my home, right?
• 28:25
  Well, that's what the government's at.
• 28:27
  The government has trillions of dollars of debt.
• 28:30
  They really can't afford to pay the debt based on the income they collect.
• 28:33
  The income is those taxpayers.
• 28:35
  So if you don't have enough income to pay your debt, where does this inflation come from?
• 28:40
  It's deflationary, it's always been deflationary.
• 28:43
  And I could show you charts which are really interesting.
• 28:46
  The only two times that we had really, well, there's been more but I'll say sustained
• 28:50
  periods of big inflation were the 78, 79, 80 period.
• 28:56
  If you look at the chart and you see what was happening with the deficit, it was going
• 28:59
  down.
• 29:00
  The Fed was trying to balance the budget and they were not stimulating the economy and
• 29:06
  that's when we got inflation.
• 29:09
  After World War II, we stopped stimulating the economy because there was a fear of too
• 29:16
  much growth and we had inflation.
• 29:19
  So inflation comes from no stimulus, no growth, not growth in the deficit.
• 29:27
  It's sort of a backwards belief.
• 29:30
  So in my opinion, the deficit is going to get much, much bigger.
• 29:34
  And there's this really big, long philosophical discussion about something called MMT, modern
• 29:41
  monetary theory, which I won't get into because it's super geeky.
• 29:45
  But the basic premise is that it doesn't matter how much the Fed stimulates the economy
• 29:53
  and how big the deficit gets as long as that debt is going to growing the economy.
• 29:59
  As long as the economy is growing, we're building jobs, we're building infrastructure,
• 30:02
  and you make the deficit as big as you want.
• 30:05
  I wrote an article about it with the full intent of talking about how foolish MMT was,
• 30:11
  like what kind of knucklehead would ever think of this work, and I proved that it probably
• 30:16
  does work.
• 30:18
  So I don't see the deficit from Saul to Paul or whatever that conversion was.
• 30:25
  So I think the Fed is going to have to do a lot more because we are going into a deflationary
• 30:31
  period.
• 30:32
  And deflation is what killed Japan.
• 30:34
  I mean, 20 years, two decades, they called the lost decades for Japan.
• 30:39
  Japan took their rates to zero.
• 30:41
  Did they have inflation?
• 30:42
  No, they still don't have inflation.
• 30:44
  Our birth rates going down.
• 30:46
  Japan's birth rates going down.
• 30:48
  We so closely looked like Japan did 20 years ago that I just think we're headed down the
• 30:55
  same road.
• 30:56
  And I'm not saying it's something dark, horrible thing.
• 30:58
  I'm just saying the Fed is probably going to have to push rates beyond zero.
• 31:02
  Beyond zero.
• 31:03
  Yeah.
• 31:04
  Negative.
• 31:05
  Yeah.
• 31:06
  Really?
• 31:07
  That's what I think.
• 31:08
  If they're so concerned about deflation, I don't see any other way around it because
• 31:14
  they just can't create inflation.
• 31:16
  Hold on a second.
• 31:18
  So deflation, and this is much better than me, I'm reading the description definition
• 31:23
  here.
• 31:24
  It's a reduction in money supply or credit, right?
• 31:27
  Well, that's a component.
• 31:32
  But if you just look just from a common folk way to look at deflation is I have a mortgage
• 31:40
  and that's a fixed payment of say 2000 a month.
• 31:44
  And now society is deflating.
• 31:48
  So my paycheck goes from 4,000 to 3,500.
• 31:52
  Company prices are going down.
• 31:54
  They just go down.
• 31:55
  Everything goes down, but your debt stays the same.
• 31:58
  So all the reasons why we tell everyone go get a mortgage, because even the amount of
• 32:02
  how hard that, I was just talking to my daughter about it, because it kind of lives out in
• 32:06
  the country.
• 32:07
  We helped her buy a house.
• 32:08
  The payment was 1,600 a month.
• 32:10
  She was like, I thought she was going to die.
• 32:12
  And we were taught, and this was five years ago, when we were talking about she was, that
• 32:15
  I can't believe I thought the payment was high.
• 32:18
  And her income has not really changed that much.
• 32:20
  It's just, you know, everything else inflated, but the mortgage stayed the same.
• 32:24
  So it goes the other way, though.
• 32:26
  Your wages go down, but your mortgage stays the same.
• 32:29
  And so what you're saying is that makes a strong case for mortgage rates, buying houses,
• 32:34
  all that.
• 32:35
  Yeah.
• 32:36
  My mortgage rates have to, they just have to stay low.
• 32:39
  They're going to, I think they're going to, even if the Fed doesn't keep buying bonds,
• 32:43
  there is a spread between mortgage rates and the tenure bond, or mortgage rates and the
• 32:48
  Fed funds rate, and that spread is historically maybe one and a half, or we'll call one to
• 32:53
  one and a half percent, that spread's been running closer to two.
• 32:57
  And the reason the spread is higher right now is that investors are afraid of the risk
• 33:01
  of buying mortgages because of what's going on in underlying economy.
• 33:05
  So there's some risk price right now in mortgage rates.
• 33:08
  So I believe that you're going to see that spread, and that's going to bring rates down
• 33:12
  all by itself.
• 33:13
  So I think really next year, we should really see a very low two interest rate on 30 or
• 33:20
  fixed.
• 33:21
  Really?
• 33:22
  Wow.
• 33:23
  So the refires are going to continue.
• 33:27
  I think that's why we started the processing company.
• 33:31
  We just don't see it stopping.
• 33:33
  Now there's a caveat, Jess, and yes, in studying inflation as much as I have, the only real
• 33:41
  correlation I can see to inflation is the dollar.
• 33:45
  If the dollar devalues too much, there is a correlation to inflation.
• 33:50
  If the economy gets really weak, you know, Trump's been pushing all along, we need a
• 33:55
  weaker dollar.
• 33:56
  Our dollar is too strong.
• 33:57
  And in a way that's really horrible to say, like that's like saying, we need a weak in
• 34:01
  America.
• 34:02
  But on the other hand, he's not wrong because if our dollar is really cheap, our stuff
• 34:08
  looks really cheap to all the other countries.
• 34:10
  Right.
• 34:11
  That's where the inflation can come from, a flood of money coming in from other parts of
• 34:14
  the world.
• 34:15
  So you can see the dollar getting pushed down to help the economy, which in turn could create
• 34:20
  some inflation.
• 34:22
  So what could blow all this up?
• 34:23
  I mean, the stock market would, is the stock market over, it's funny, I've been talking
• 34:29
  to too many people that are smart like you who, and so I pause on my question, like Logan
• 34:32
  Manashami from Housing Wire, shout out to him, right, what about the stock market being
• 34:39
  overvalued?
• 34:40
  Let's use that word.
• 34:41
  Is there such a thing as being overvalued?
• 34:43
  Yeah, it's horrible right now.
• 34:48
  There's so many ways to look at the stock market, but the most simple is stocks trade on
• 34:54
  a multiple of a company's earnings.
• 34:56
  So by earning a dollar a share, and I have a hundred shares, I'm earning a hundred dollars.
• 35:05
  So I'm earning a hundred dollars, I have a hundred shares, that's a dollar a share.
• 35:09
  That makes sense.
• 35:10
  I say that right?
• 35:11
  Yeah, yeah.
• 35:12
  Now Wall Street says, or the market says, well, you're growing really fast.
• 35:16
  So we're going to multiply that dollar a share, and that's how we're going to perish
• 35:19
  your stock.
• 35:20
  So historically, the S&P has been trading at about 16 times earnings.
• 35:25
  Right now, it's trading at 21 times earnings, but it's not trading at 21 times now, it's
• 35:30
  trading at 20 times forecasted earnings for 2021.
• 35:34
  It is absolutely insane.
• 35:36
  If you look at the earnings based on trailing the last years earnings, we're probably
• 35:44
  trading at 30, 35, 40 times earnings.
• 35:46
  You have companies like Apple, trading at 60, 70, 80 times earnings.
• 35:53
  It doesn't make any sense, unless you believe the economy is just going to just explode
• 35:58
  from here and just go straight up, and I see a lot of trouble water ahead in the economy.
• 36:03
  So I think there's a major, a much bigger crash coming, and I think what keeps stopping
• 36:09
  that is these Robin Hood guys, all these Robin Hoodies, there's millions of them throwing
• 36:14
  millions of dollars, and every time the stock market goes down, the mantra is stocks never
• 36:18
  go down, and they buy the dips.
• 36:21
  But what I'm watching in the underlying is the institutions.
• 36:24
  Every time the market runs up, they quietly are selling, and that's what I like today.
• 36:29
  The market was up, but something called market breath was down, meaning the volume was
• 36:34
  too low.
• 36:35
  There were too many stocks that fell versus stocks that went up.
• 36:38
  So there's all these signs.
• 36:39
  The institutions are selling on these updates, and then the Robin Hoodies are buying on
• 36:43
  the down days.
• 36:44
  All the Robin Hoodies are doing is feeding these big institutions, and then they're selling
• 36:48
  into those rises.
• 36:50
  So at some point, the Robin Hoodies are going to be crushed, I believe, and the institutions
• 36:55
  are just going to keep selling.
• 36:57
  And of course, remember, bad news, not just use that term, but for the economy, bad news
• 37:03
  for the economy, or typically a negative stock market is good for mortgage interest rates?
• 37:08
  Absolutely.
• 37:09
  100%.
• 37:10
  That's the whole point.
• 37:12
  So that's probably one of my bigger concerns is the stock market.
• 37:18
  But so valuation is one part of it, but corporate debt is the bigger part of it.
• 37:25
  Corporate debt has never been higher, and what's happening now is, if you look almost all
• 37:31
  the corporate, the vast majority of corporate debt is like B-rated or double B-rated, think
• 37:36
  about sub-prime debt.
• 37:37
  These companies are so weak, but there's so much money out there flowing from the Fed.
• 37:43
  Thank you very much.
• 37:44
  By the way, the Fed's creating all these problems.
• 37:49
  These companies are able to borrow money, and these are literally zombie companies.
• 37:52
  These, 20% of the companies on the Russell 2000 are zombie companies, meaning they don't
• 37:57
  make enough money to pay their debt.
• 38:00
  They don't make enough, they can't service their own debt with their wages.
• 38:03
  Using those, the shareholders, they survive every year by selling more bonds.
• 38:08
  So this thing just keeps getting bigger and bigger and bigger and bigger and bigger.
• 38:11
  It's going to be way bigger than the mortgage sub-prime meltdown.
• 38:13
  It's going to be a corporate sub-prime meltdown.
• 38:16
  Oh, so we're going to see a lot of bankruptcies and stuff in sales and sees, yeah.
• 38:20
  That's what I think.
• 38:22
  Now on the positive side, I think this is what we try to tell our members all the time,
• 38:27
  it's an opportunity to build incredible wealth.
• 38:30
  Yeah, I'll sell.
• 38:31
  This is why I showed up today.
• 38:33
  How sell?
• 38:34
  Well, you want to keep your powder dry.
• 38:37
  If I'm long, and the stock market goes up another 10 or 20%, you're going to call me
• 38:42
  and yell at me.
• 38:43
  If I'm right, and the stock market goes down 80%, I'd rather have you yell at me and
• 38:49
  call me and say, I wish I would have listened to you.
• 38:52
  There's a saying, I'm a pilot, and the saying is, I'd rather be on the ground wishing
• 38:56
  I were flying, and in the clouds wishing I were on the ground.
• 39:00
  That's a good one.
• 39:02
  It enables technology, but it's not a mystery technology.
• 39:05
  Do you know what a coax cable is?
• 39:07
  You know, you screw it into your cable.
• 39:09
  Yeah.
• 39:10
  Do you like screwing those things in?
• 39:11
  No, they're panning the ass.
• 39:12
  I think the stupidest things in the world.
• 39:14
  Yeah.
• 39:15
  Why doesn't somebody make a connector for coax cables?
• 39:17
  A better connector.
• 39:18
  Yeah.
• 39:19
  Dude, that's a billion dollar idea.
• 39:22
  Think about you selling it to all the cable companies?
• 39:24
  That's what I think, too.
• 39:25
  Let's do it together.
• 39:26
  Let's do it.
• 39:27
  In the Tesla connections.
• 39:29
  If you saw where I'm sitting today, I have this, the campsite thinks I'm crazy.
• 39:34
  I got this cool.
• 39:35
  It goes up about 30 feet in the air, and with wires all over it, it looks like a freaking
• 39:40
  space station, because we need internet everywhere we go, and it's putting these coax cables
• 39:45
  together.
• 39:46
  It makes me insane.
• 39:47
  I like that.
• 39:48
  That's a good one.
• 39:49
  All right.
• 39:50
  So that, I love that.
• 39:51
  Let's close out on this one.
• 39:52
  It's a different feel.
• 39:54
  If you could send a message to the entire world, what would you say in 30 seconds or less?
• 40:01
  This is going to be really cool, but it's honestly where my heart is.
• 40:05
  Is it really worse killing people, fighting, anger, hatred?
• 40:10
  Is it solving anything?
• 40:11
  I mean, if we could just all try to sit down and understand the other person's point of
• 40:16
  you.
• 40:17
  It goes back to the first thing I said.
• 40:18
  Can we agree there's a difference through an opinion, in fact?
• 40:22
  An opinion and on a fact?
• 40:24
  You're going to open your mind to my opinion, which are not facts, because this world is
• 40:28
  scaring me.
• 40:29
  I love it.
• 40:30
  I love it.
• 40:31
  And that deserves a.
• 40:32
  Yes.
• 40:33
  I'm close.
• 40:34
  You're inspiring me, dude.
• 40:36
  I want to have my game on the podcast.
• 40:38
  You look good.
• 40:39
  You got the old stuff going on.
• 40:42
  It's only five years into making.
• 40:43
  That's all.
• 40:44
  All right, Dan.
• 40:45
  Listen.
• 40:46
  Love the conversation here today.
• 40:47
  I really appreciate your insights and, man, really just great to get to connect with you
• 40:51
  and know you.
• 40:52
  Thank you so much for making time.
• 40:53
  Yep.
• 40:54
  I had a lot of fun getting to know you as well.
• 40:56
  You're a great guy and I'm just excited to watch your success.
• 41:00
  Same here, man.
• 41:01
  So once again, we're going to put in the links and the show notes to all the stuff that
• 41:03
  we talked about, your newsletter, all that kind of jazz.
• 41:06
  Listeners, I hope you like this episode.
• 41:07
  There's a little something different coming at you, mixing it up and, hey, I appreciate
• 41:10
  you tuning in.
• 41:11
  And as always, if you like it, leave us a review.
• 41:13
  We'll see you on the next one.
• 41:14
  Bye for now.
• 41:17
  Hey, guys, what's up?
• 41:23
  Real quick.
• 41:24
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• 41:26
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• 42:31
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