Latest / Financial Survival Network / Buffett is Buying Japan -- John Grace #5859

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Buffett is Buying Japan -- John Grace #5859 · Financial Survival Network

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So as I say, who knows. I can't tell the future. I'm
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not trying to predict it. What I'm saying is, let's be prepared for
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the good, the bad, and the un proceed if you have your cash.
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One of the things that bupp But is famous for is capturing his cash
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and not buying anything, no stock, no house. In fact, he
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doesn't he's not really in the real estate at all. But let's understand,
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he captures the cash and waits for an opportunity to fall in his lap.
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And that's what he studies every day. He suits up to go to the
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office, literally suits up and his old Cadillac it was an old truck to
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study opportunities. You're listening to Carrie Let's his Financial Survival Network where you get
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more than ever, and welcome you are listening to watching the Financial Survival Network
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on your own's Terry Lutz. Well, we know markets in the US are
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in flux right now? Are we becoming another Japan? And hey, perhaps
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Japan is where you should be investing. That's where Warren Buffett recently bought a
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whole bunch of those stocks. Maybe it's a place to go. John Grace
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is with us now. John, it's great to have you back on the
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show. And so tell us what can we learn from Japan? Well,
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it's a great question, carrying goodness seeing you again. And what we're trying
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to do is, you know, people will get lost, I think and
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saying well, it has to be positive, you know, Ever, Maiden,
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you say something negative. But my best example is, jeez, you
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trump probably drive your car with GPS on it right and it tells you objects
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on the road ahead or speed trap ahead? Is that bad news? No?
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What do you do? You do? What I do? We sit
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up, we're more alert and we don't want to hit anything. So what
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we're talking about here is maybe we can you know, maybe we now understand
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after COVID that we're drinking the same water, we're breathing the same air,
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we're flying the same airplanes, and maybe we can turn on our GPS system,
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put on the headlights, the high beams and see what's around the road
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ahead. So what's so fascinating is I think to a person, we all
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agreed back in the late eighties Japan was going to be number one in gross
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domestic product. We were okay with that, right, they got the sun
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on the flag there, they've owned everything alert by go ahead, but that
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did not happen. In fact, what we can see it is approximately twelve
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twenty nine eighty nine. That's when first the Japanese stock market he started close
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to forty thousand, and then in about eighteen months or so, Carrie,
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the Japanese stock market measured by the knee K two two five that would be
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the equivalent of the S and P five, but dropped eighty percent eighty set,
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so a million dollars went to two hundred thousand. Okay, a year
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later, Japanese real estate dropped seventy percent, I mean down. So that
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means the ninety dollars went to three hundred thousand, So you used to have
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two million. Now I'm at the bottom or so you have a total of
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about five hundred thousand. And here's the trick question. And I emphasize carry
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it's a trick question because you don't have to study this to get the answer
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correct if you follow the formula. When here it's a tricks question, that's
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a clue. Right, So here's the trick question. Which do you think
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has come back to even has it been? In the Japanese stock market or
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the Japanese real estate market. Either neither go to the head of the class
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like Antel survival. Neither imagine gets over thirty years later, and neither your
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stocks nor your real estate you had thirty thirty four years ago are back to
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their highs. And now you're thirty four years older. Just imagine that for
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a minute. Now, the NIK has recovered to some extent. Last I
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looked, it was around thirty three thousand, but the peak was at thirty
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nine thousand. What does that mean? You're still about what five ten percent
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below the high water mark? And that's assuming what you didn't sell one share,
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You didn't need any money over the last thirty three thirty four years.
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Oh, where is that true for anyone? Okay? And then now we
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see with real estate, no, neither the real estate market nor the stock
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market has come back to their high water marks. In fact, now we
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can see evidence that there are eleven million homes in Japan that are completely vacant.
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That's hard to imagine, but that's the way it is. And from
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the source that I bound suggests that the Japanese could be on the trajectory of
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tripling that number to thirty three million, and they could all be vacant out
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of the total of sixty two million homes for a population of about one hundred
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and twenty seven million people. And let's understand what's interesting. Part of what's
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interesting about Japan. They work hard, they're known to be very intelligent,
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they're fastidious, they typically tend to be polite, and they have the highest
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life expectancy at eight four point eight. By the way, we're at seventy
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seven. That's an interesting number for us to watch. Why is it interesting
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because I would submit that the real estate boom that we've so enjoyed here this
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time with upon is primarily due to baby bloombers seventy six million people strong on
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born between nineteen forty six nineteen sixty four. But seventy seven is important because
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seventy seven is the average age of death of America for most of US,
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seventy seven almost eighty five in Japan, higher than eighty in the UK and
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Canada much lower than eighty four the US of A. So here comes seventy
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six million people that came into the equation called the United States of America.
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And I don't know if it was irrational exuberance or what it was, but
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when you have seventy six million people come into the equation, it stands a
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reason you have a lot of demand for a lot of things. So here's
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the question, what happens when seventy six million people go to heaven? Well
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look at Japan, and we looked at what happened after the Great Digression here
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in the United States of America, where New York real estate took four decades
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to come back to even the life expectancy if we were adults at that time.
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Kerrie was at think fifty seven. So what was that? Say,
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your real estate went down seventy percent, your stocks went down eight percent.
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Stocks took twenty five years to get back to even New York real estate always
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the capital capitalism right, took four decades to get back to. Ever,
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neither the real estate holdings nor the stock market came back to their high water
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mark while you were still here. So I suspect a lot of people died
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with regret, and now we see this pattern playing off in real life right
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before our eyes and Japan. Could it be that we're going to follow their
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example? Well, I think that is very possible. Again, why seventy
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seven, We've been told what it's about location, inventory in interest rates.
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Well, if it was so important about interest rates, why were baby boomers
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standing in line in the year ladies to buy a house at sixteen percent?
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Maybe it's not so much about interest rates, it's about studying something we'd all
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do, the buying and selling behavior based on age. So seventy seven is
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the average age of death in America. Seventy eight happens to be the average
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age most Americans sell, and if you look at any block across the country,
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probably four to five homes on each block or owned by boomers. I'm
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just saying something. Let's get ready for something we have not seen before.
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It is completely unprecedented, but it would not surprise me in the environment where
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people dying outpace people buying, that prices and reds do what you've not seen
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them do before they go down, and they may stay down. So this
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might be a good time to look for bargains as Buppet is famous for.
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It also might be a good time to take some chips off the table,
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right because you count equity is cash, but it really doesn't count as cash
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until what you cash the checks. Kind of like going fishing. If I
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tell you about the fish that got await, you don't want to hear it.
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Show me the bish eat the fish. That's a better story than telling
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me about the one that got away. So, yeah, these are interesting
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times, and they were completely unpreceded. So is it strictly demographic here or
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is it it is there more at played here? It was probably more in
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place. Yeah, but I would say that the majority of us. When
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we have a friend of mine who runs a big real estate company says John,
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I've been in the business forty years. I've seen everything, and I'm
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like, what you have seen is what we've all participated. It. That's
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boomers coming at the equation, driving vices to new highs. You have not
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ever seen seventy six million people go to helld it. That's a whole new
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environment. So do not tell me like you did about COVID. Oh,
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we'll be back to normal justin a couple of months. Now, we're not.
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Don't tell me that it's got to do what it's done because we're in
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complete, the uncharted, unprecedented territory. Again, if the demand seventy six
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million people out of what three hundred thirty million or so in the country go
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to heaven and the supply of homes across the country remained the same, they're
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not going anywhere. What do you think prices or rents are going to do?
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I submit that they're going to do what they did after the Great Depression.
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Prices and rents went down after the Great Depression. So as I say,
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who knows. I can't tell the future. I'm not trying to predict
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it. What I'm saying is, let's be prepared for the good, the
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bad, and the un proceed if you have your cash. One of the
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things that Buffa is famous for is capturing his cash and not buying anything,
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no stock, no house. In fact, he doesn't he's not really in
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the real estate at all. But let's understand. He captures the cash and
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waits for an opportunity to fall in his lap. And that's where he studies.
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Every day he suits up to go to the office, literally suits up
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and his old Cadillac it was an old truck to study opportunities. And I
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loved his line that the bad news is an investor's best friend. Bad news
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is an investor's best friend. So again, if we're trying to hold onto
10:09
the equity, if prices are going down and they may not recover while you're
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still here, you're wish you had gotten your cash, like going to Vegas,
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take the chips off the table and come back for another game. Let's
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catch the next way, no, no doubt. So you're basically telling your
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clients sell. Well, I'm saying, here's what we think is going to
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happen. Here's what we think is happening right now. And for those who
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have excess real estate, you know what we're saying is if you don't love
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it, lead it's all right. If you don't love it and have to
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have it, get your cash. I've got a friend of mine with twelve
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properties. I said this, just tore over the weekend. Sell half of
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them. I don't know what's going to happen, but you know you've got
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no less than twelve million dollars sit lined up in twelve different properties. Right.
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They're all in southern California. It's called earthquake country. If you have
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twelve million dollars in Amgen, which is right up the street here, I
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would say the same thing. Take some chips off the table, don't leave
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it all in one spot. That is not diversification. The asset type is
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the same. All right, twelve million dollars and that probably a modest estimate,
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is a whole lot of money. Take six million up the table.
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While you can't at these high water marks and figure out what you're gonna do
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with the cash sometime in the future. But I would submit say it,
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let's look at it this way. Don't sell high and buy high, right,
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keep your capital. I'm talking to young people and they say, look,
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we've got the down payment, we want to buy a house. I'll
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say, look, well, with God, if you're okay with prices dropping
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fifty percent. Our research team suggests that real estate prices in the US of
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A will revert back to their values in twenty twelve. So on average that
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might be as low as working person in Nashville, as high as seventy percent
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in Phoenix, but on average across a country, a reduction of about fifty
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percent. From here. Again, no one can tell the future, but
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if you've got your cash, you don't really give so much. You know,
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you don't give a hoot what happens to that value because your cash is
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in your pocket where you can watch the movie and you can, as I
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say, catch the next way as it shows itself up. But once you
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have the equity and you see the decline and you don't see the recovery,
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it's depressing. His Hell yeah, it could definitely ruin your day or even
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your retirement job percent it could ruin the rest of your life. A sumit.
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That's part of what drives me studying what happened during the depression. As
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I say, age of death was fifty eight. You had to be an
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adult to have a million dollars anywhere, right, but not the stocks and
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the real estate in New York didn't come back while you were sheer. No,
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I want you to have the money in your pocket, not on a
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state that as you think, it's couch and then as I say, you
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can catch the next way. When it comes to real estate, were suggesting
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that people look outside of residential look at warehouses, look at medical pertes.
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Okay, look at infrastructure, look at these places that the man's not you
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gotta you know, I said my wife or Christmas yept. I counted all
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the little stickers from the different places where it was warehoused from China. I
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counted over twenty. Well, I would sitting to you that's a good place
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to look at it. Desmon opportunities where there's always something coming through this.
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Somebody's paying for it to be shipped to, own the warehouse where they own
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the distributed, best facility, own the medical facility where we're standing in line
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waiting to see a doctor. You know, thirty or everybody's ten thousand people
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a day of turning sixty five through twenty thirty. So let's look at where
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the wave is headed as opposed to where the wave is crested. H all
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right, So, and how confident do you feel about this? Well,
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you know that I love the question. It's close to the question where people
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say, well, when's this going to happen? I'm like, I can't.
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It's not about the prediction. It's all about of preparation. And I'm
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going back again to the research team because that's what they do. And in
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six o seven they suggested that real estate prices were likely to drop by in
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this country. No like making that forecast. From what I can see,
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on average the decline was about thirty or percent across the country. That's pretty
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close to forty. They're the ones who are saying dead. Research said,
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right now, be not surprised to see prices drop fifty percent. And I
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don't know how we're going to miss this. As I say, we've only
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seen seventy six million people show up. What happens when seventy six million disappear?
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Fly got a lot of illegal aliens who are openly going to take their
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place right Well, you know when it comes to that subject, and this
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comes from the research team, and understand that the majority of the folks in
14:54
the road financial advisors really from around the world. The ones who are from
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the US are generally Republican. And the research team looked at that situation and
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what they look at many people were surprised for them to not look at it
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from an emotional standpoint, but look at it from a standpoint of it is
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it a net gain or get a net loss? And what they found was
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it was a net gain. In other words, whether you were legal or
15:20
illegal, when you come here, you put a lot of money into social
15:26
security and into you know the taxes, property taxes, sales taxes. Then
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you get married and you have kids, where are you going to go?
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So what we're saying we don't have enough people. No country is replicating itself
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outside of India, which means we have more people dying than we have children
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being born. And that was happening before COVID, it got exasperated by COVID.
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So I'm saying that, you know, if you look at Canada as
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an example, I believe they brought in over a million immigrants last year.
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They're the only ones with an open door and they'll take everybody, but and
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and understand they often get the best and the brightest. But when you have
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an attitude that you know, we're just fine and we all need anybody,
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well, you're gonna, you're gonna. That's when you find that you what
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do I just hear a star brand new Starbucks closed in northern California. Just
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heard this this morning from a real estate group. And it closed because they
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couldn't find people to pay twenty bucks an hour. We don't have enough people
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here. So whether you like them or not, remember the reason that we're
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younger than Japan is because of our immigrants they send to have more children.
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They tend to have children. The rest of us not so much. So
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we just need more people. And again it doesn't matter as far as I'm
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concerned. We prefer people to be legal. But at the end of the
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day, it's a netbitit to the country, legal or illing. And I
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don't disagree with you at all. I just think it needs to be more
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controlled. Yeah, idulated a process, yeah, cross ends reft exactly,
17:00
free for all over the border just doesn't work. You know, bad things
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can happen as a result, and it's got to be orderly, much like
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it was the turn of the century. No one in the country since the
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since the Native Americans are here at the Mayflower hold up, nobody's ever been
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thrilled about immigration, right, Um, very few. A lot of Well
17:27
we usually my group got here, so raise the drawbridge. Right, that's
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how bad? Right, that's it. But the fact is, when it's
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done correctly and not with ulterior motives. But actually, if it's a good
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of the country and the good of the people coming here, it's always been
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a net positive, everybody wins. Yeah, So let's go back to those
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days, all right. So after the demographic cliff coming and you know it's
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got all sorts of unintended consequences. Is AI and is robotics gonna get us
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oute of this job? Well, that's the wild card. I mean,
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we'd all normally we know most of us don't really quite understand kind of like
18:15
the Internet when becknees when that was new, that is this, how does
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it work? Well? Same story here. Yeah, But you know,
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as a friend of mine was saying again just this morning and another business call,
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this gentleman said he used to have eighteen people work for him, and
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now he can do him with with technology and his own if he's eighty five
18:37
his own capabilities, he doesn't need those eighteen people. He can get it
18:41
all done himself. So yeah, it's gonna be very interesting how this h
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this plays out. But that's also why we want to keep our eyes to
18:48
the on the ball in terms of let's see where opportunity can present itself and
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insert that opportunity. Totallyted ring on that the implication of AI are just really
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completely not understood and appreciated it this point. So, like you said,
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there are sectors that you do like sectors that you don't. What as you're
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like number one sector looking ahead that you think, regardless what happens demographically,
19:22
it's going to be a winner. Well, okay, for investors outside of
19:29
real estate, we like first and foremost that all the positions are actively managed.
19:34
If we look at most mutual funds, particularly in two thousand and eight,
19:38
where the mark was off thirty seven percent, the majority of mutual funds
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stayed passage. That means they were bi percent cash and I get five percent
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invested. And when the market was off thirty seven percent, a lot of
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the no load funds that so many of so many experts that said, put
19:52
all your money in it and forget it. We're offull with forty percent,
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and by the way, they often took four to five years to get back
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to even as opposed to a passive POSI should we like acted bench, which
20:04
for some clients the portfolio for them, if that was great for them,
20:08
started at five percent and may have ended eight up to one hundred percent cash.
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So think of a karate kid wax on wax off in O eight.
20:17
You wanted to wax off, you wanted to get out of shares into cash,
20:19
and you need some one or some system that can systematically pull that punk
20:25
or you you know, just let it move. Not in a balk necessarily,
20:30
but looking at your account every day asking the question, is a risk
20:33
on a risk in O eight you wanted risk off? Starting March nine,
20:37
two thousand and nine, you wanted risk on because we're off to the races,
20:41
right, So that way you maybe the account, as I say,
20:45
started O eight, five percent cash went to forty fifty in some cases got
20:48
to one hundred percent cash. In those scenarios, you can see the evidence
20:53
that those accounts that work like that might have been off less than twenty percent.
20:57
Well that's better than thirty seven or forty or more, okay, and
21:03
burns the coast became clear that it's off to the races again. Maybe you
21:08
have the system designed to move your money on your behat out of cash back
21:12
into shares, risky assets, so that now you're ninety five percent invested five
21:17
percent cash. That's the combination that we like that we think what we've seed
21:22
it hold up better at O eight in in twenty twenty two, as opposed
21:26
to the markets just last year being off twenty to thirty. If your account
21:30
was off let's say ten or less, you can go, well, I
21:32
don't like losing a hundred thousand dollars on one million two percent of a billion,
21:37
but I'd rather it'd be one hundred thousand as opposed to be the market
21:41
at twenty percent or thirty percent. That would be a minus of what two
21:44
to three hundred thousand. So let's what do they say when you find yourself
21:47
in the ditch, stop DIGGI let's stop digging your ten percent as opposed to
21:51
watching the account prop twenty thirty percent, because then we don't need any hell
21:53
married mass just to get back to either what else we like our private equity
21:59
and private credit positions, and for retail investors, that's relatively new. Those
22:06
kind of areas of investing. The institutions and endowments have been in for over
22:11
forty years, and up until recently, the only folks who had the ability
22:15
to take a position had to be They had to be accredited, had to
22:19
have a million dollars outside of the house to be a willing to talk to
22:22
them about such a position. But those those those rules are changing and some
22:27
of these positions that as I say, the institutions and endowments have been about
22:33
opening up to retail investors, so that you can you know, you mentioned
22:37
more Bopa. He's famous for taking huge positions in public companies. There's far
22:42
more private companies, and there are public companies in the USA Bay. And
22:47
if it is the case that there's a pool where you can invest in all
22:51
the twelve or fourteen different private companies that are trying to do well and have
22:56
done well, we find, for example that two thousand and twenty two those
23:02
positions, the ones that we've been monitoring and recommending, had pretty good yields
23:07
and load amid double digit returns. We think that will continue. We called
23:12
these positions back in twenty eighteen, twenty nineteen, we thought they would be
23:15
recession resistant, was using black men, and then so far that's exactly what
23:22
they've proven to be recession resistant. And that's the point. We want to
23:26
limit our losses where we can't and see some gains in other positions. But
23:32
that means we have to be diversified in more things than the securities industry has
23:37
told everybody. You know, you're diversified, carries sixty forties old biic stocks,
23:41
bonds, bond stocks, You're well diversified. But we look at nail
23:45
as an example, I count seven legs underneath their portfolio stools. So clearly
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I submit that we can't do what Yale does, but maybe we can learn
23:53
from some of the best and brightest. And by the way, the last
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time I look, Yale's endowment exposure to US stocks is all of three percent,
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not thirty. Not set them in deeper, set three percent. That's
24:04
not a suggestion, it's just man. Notice their exposure to the traditional assets
24:10
is a lot less than one would think, and they have, as they
24:14
say, more legs underneath their portfolio stool. So maybe we can learn how
24:18
to do some of the things that major endowlets have done in our own footboards.
24:22
All right, all right, John, really appreciate you coming up talking
24:26
about this. I think it's really important. It's not being paid enough attention
24:30
to for sure. Hey, where do we find you out these days on
24:33
the internet? How do we connect with you? We're at Westlake Financial Advisors
24:38
dot com investors Advantage are happy to answer questions and see how some of these
24:45
things make sense for folks. And one of the questions that we like to
24:48
help people answer is not are you conservative monitor aggressive? I don't understand the
24:52
question you don't understand the answer, So what the heck are we talking about?
24:56
How about we get deeper and have you answer in a series of ques,
25:00
and that includes what kind of loss can you accept? Is it eight
25:03
percent? Is it eighty percent? You tell me how bad it gets before
25:07
you pull out your hair. But you want to see how your portfolio did.
25:11
We're working with the Liberal just last week. This lady has been to
25:14
seventy countries. She's well into her mid seventies. And when we back test
25:18
to look at her portfolio and oh eight, is she held the same positions
25:22
at oh eight? And she did well. We reviewed her portfolio at the
25:25
time while the market was off thirty seven percent, her now was off seventy
25:29
percent. That's that's huge. So yeah, most people don't look to see
25:33
how bad it got, which I submit leads you open to it doing something
25:37
like that again or words. So maybe we should learn from the desk,
25:41
not just repeat it and see what kind of losses we've experienced. And then
25:45
the question becomes what kind of lost are we okay with? And is it
25:48
possible to put a portfolio together that might perform within your lost parameters as opposed
25:52
to be telling you Hey, it all stops for a long wall, that's
25:56
what it does. You got some more money, don't you? Yeah,
26:00
exactly exactly. I couldn't agree with you more. And yeah, those one
26:03
decision stocks from the nifty fifty during the seventies. We all know that that
26:11
to wound up the trail of tears and adapt any of these little investment concepts
26:18
to your will eventually look great while they're working, and eventually that will fail.
26:23
And that's where you wind up. Hey, if you have a question
26:26
for John myself, email k l at Kerry Lutts dot com and make sure
26:32
you go over to Financial Survival Network dot com. John site is at the
26:37
show notes for this interview. While you're there, sign up for your free
26:38
newsletter, John. Great. Having you on is always. Thanks for that
26:42
insightful recitation there really opened my eyes my pleasure, Garry, look forward to
26:49
seeing you next time. Thanks for listening to carry Letts's Financial Survival Network,
26:55
your solution to today's trying times. For the latest, go to Financial Survival
27:00
Network dot com. Financial Survival Network now more than ever