 Blammo do you want to get strong? Of course you want to get strong. That's why you listen to mine pump All right, here's we're gonna give away for you right now map strong We named the program strong because that's what it does to people make some strong We couldn't name it sexy because it does that too, but our marketing team said no don't do that So it's called map strong you get free access to it if you win the following contest Here's what you do leave a comment in the first 24 hours It would drop this episode make it a good comment subscribe to this channel and turn on your notifications If we pick your comment if we like your comment better than all the other comments will notify you and then you'll get free access To map strong isn't that cool? Oh by the way, you're gonna enjoy this podcast We have Peter linman on we talk about the economy why it's not gonna crash This is a good news episode. So if you're tired of feeling crappy, you'll love this particular episode also one more thing Maps anabolic is combined with the no BS six pack formula this month for a bundle deal a bundle sale So you can get both for $59 and 99 cents That's the savings of over $100 if you're interested head over to maps october comm to sign up. All right, here comes the show We wanted to start with by asking because it looks like now We when we had you on last we speculated about inflation because of the money printing. It looks like they're now Admitting. Oh, yeah, inflation is happening. Although. We're also hearing that this is transitory or whatever We're also hearing about supply chain shortages Can you kind of explained what we're seeing right now with rising prices? And then what do they mean exactly by supplying chain shortages? Where are we seeing that? Okay, so let me give you a Short answer in a little color short answer is There is year over year inflation, but Remember how bizarre last year was so whenever you do a year over year comparison event anything You got to think what was a year ago. So if I told you wow, I'm walking a hundred percent more than I did a year ago 150% yes, but you were down with surgery a year ago, right? It's not a reflection on how much you're doing now But you had just came out of surgery a year ago Well, the economy a year ago was on its deathbed. Okay, no one raised prices last year They didn't even raise the price of toilet paper last year think about that You know huge demand no supply toilet paper price didn't go up and by the way late April the price of Oil was negative Not just low. It was negative to get rid of a barrel of oil I actually had to pay you to take it from me Well, that's not normal and those things rippled through the economy and I'll give you one other Use cars. Well, one of the main sources of use cars supply Are the rental company the rental car companies, right because they turn their fleet over Last March April May June. They were all going bankrupt because nobody was renting cars, right? What did you do to get cash when you're going bankrupt sell your cars? So they sold a huge proportion of their cars into the used car market By the way, who was buying cars last April May June? Nobody So the price of used cars plummeted with extraordinary supply and extraordinarily low demand Now let's come back a year later and think about these things Okay, so well, you just got out of surgery, right? You just got out of surgery nobody raised prices last year even if they could Can you imagine what would have happened if the toilet paper companies would have raised their prices of toilet paper at that? They'd have been crucified right so they didn't raise it But this year they're raising them for two years worth, right and maybe a little more and Let's go back to the used car example the used car example Well this year the rental car companies have no cars to sell into the used car market because They sold them all a year ago. They don't have any And on top of that since the economy is more or less recovered people are buying cars again Including used cars. What do you think happens to year over year change in auto price use car prices? They skyrocket absolutely skyrocket and in fact 20% of the five slightly over five percent increase in prices that's occurred year over year 20% of it was for used cars 20% of all the price increase on average was due to one thing used cars Did any of you buy a used car in the last month or two? No, probably not so but it went up and It's enough. It's about how bizarre it was a year ago and by the way still going on Oil gee oil went from negative To kind of normal you think that skyrocketing inflation coming from that as it goes through But it's more of a return to where it was So yes, you just got out of the hospital with hip replacement a year ago You weren't walking very much this year. You're recovered So if I did a year over a year comparison, of course, you look like you're walking tons But you're really just back to where you were Kind of when you were healthy There's a lot of that going on and I only give you a couple of examples. You add to that things like Border controls on cross-border transactions some of them relating to tariffs and trade wars, but some of them relating to Safety, right? We don't want Doc work or some doc workers ship workers, etc. Etc. Etc. Vietnam Vietnam closed a lot of their factories just closed them Well, you talk about what supply chain problem mean if Vietnam closed their factories They were providing it to somebody Right. Why did they close it because of COVID? So you've got a lot of that kind of stuff going on and it's real In the one hand and on the other hand it's completely anomalous And you've got to kind of step back and look at it a little bit So most of the inflation you're seeing is anomalous Or purely reflective of how bizarre last year was Rather than this year. So exceptions, but that's the short version So peter that that explains kind of the goods and service side of it pretty well But what about what we're seeing in the housing market? I mean the housing market is Now that's out of control and that hasn't slowed down and that was even high last year During all this. So how do you explain that and rent and rent? Yes. Yeah Last year rents didn't go up because no landlord wanted to be a headline, right? No landlord wanted to be a headline And by the way, you didn't even know if people were going to pay you last year This year landlords are getting two years of rent increases Plus the supply slowed down last year, right because of the shutdowns of COVID and projects that were delayed So guess what this year? Rents are way up on the on the on the rental side and you go, of course. This is that's not monetary being created, right? That's just You reduce supply you increase demand you don't raise it now you raise it two years worth You an outcome to single family We have underproduced we have about 145 million housing units in the united state just roughly um, and Back at the envelope. I'm going to be real fast 100 million of them are owner occupied 45 million or renter, okay over the last 20 years largely because of nimbyism Not totally but largely because of nimbyism We have underproduced single family housing by about three and a half million units So hundred million under supply by three and a half million and on the multi family side about 500,000 On 450,000. So something like one percent under supply on multi Doesn't sound like a lot except people need housing They need housing So a one or two or three percent shortfall Doesn't do anything to the price of bubble gum because if they try to back jack up the price of bubble Gum people say i'm not going to buy bubble gum. I don't need it housing very different. So a one to four percent shortfall and multi and single family Big deal big deal because people will bid up the price and that's what you've seen In both markets for over a decade with the oddity of last year for a little bit Now it's a fundamental under supply of housing again. That's not monetary That's about local ordinances and And taxes and so forth Fundamental over supply. It's not going to go away. Come on. Think about it. We've underproduced four and a half million units One percent of the housing stock over the last 20 years We're not going to eliminate that in a month, especially in the face of nimbyism That's why prices have been going up steadily Why did single family go up? more than normal norm And the reason is you need a down payment to buy a home, right? Not only do you have to make the monthly you need a down payment That's a big problem with a 10 to 20 down payment because people don't have 20 or 40 or 50 or 60 000 laying around What happened during coven what happened during coven was or especially a year ago You got refunds on your holiday trip. You couldn't go on a holiday trip. You got refunds on your baseball Tickets you didn't go to the football game last year. You didn't go out to eat It's you didn't buy a nice new dress, etc And you're saving skyrocketed and there were people lots of them That save more in nine months than they had in nine years And suddenly they look around and say I can afford a down payment I would have never adjusted my lifestyle to afford it But my lifestyle got adjusted for me and I can afford the down payment and that caused the surge And then add one other thing The other thing is what was the age of most of the people dying of coven? Most of them were 70 and 70 years and older, right? And most of them Most not all About a third of them were dying within months of when they would have otherwise died from some reason, right? But about two-thirds of them died anywhere from two to ten years earlier than the otherwise would have died, right? Why is that relevant for home ownership for home ownership? Because they died earlier than anybody expected and what did they leave? They left an inheritance to you guys And we're not talking about big money. Suppose somebody had a life savings of 200 thousand dollars and they have two kids and uh three grandkids five five inheritors 200,000 Because they died years earlier Five people got 40 thousand dollars inheritance many years earlier than they would have and Used it for a down payment. So we're not talking about rich people. We're talking about normal And so that fed this surge you saw in the single family Is that money for down payment was there because of involuntary savings and unfortunate early covid deaths Those two are going to moderate right lifestyles are coming back. I'm going to a concert tonight People were at the ball game the other day, right? So the savings part is disappearing and thankfully not as many people are dying early And leaving requests. There's still some So the single family side underproduced Home prices will exceed inflation For a good long while because of that and on top of that you have this surge that will moderate Peter when you look at the the economic climate. Is there anything that you think People should watch out for or keep an eye on or anything that worries you at all? Oh, of course, there's a map. There's a million things that worry me, but none of them keep me up at night the only thing Look, let me take the one that a lot of people would answer which is um, gee the The biden democrat whoever whatever you want to call it Taxes are going to go up and that's going to kill the economy and blah blah blah, right? And by the way, the democrats will say since we're spending so much. No, that'll offset it and blah blah blah I'm 70 years old and I've been through kind of every kind of politician combination over the years Do politics matter to the economy? Of course are they They more matter about who wins and who loses Then how much in general, right? They're more about you win. I lose Well, your win kind of cancels out most of my loss not all of it maybe but most of it So politics is much more about who wins and loses Than the overall drag Yes, there is no doubt that higher taxes put a bit of a drag on the economy But we're talking second order You know, like let's say GDP grows two and a half percent a year on average um, maybe it's a 20 to 30 basis point Drag two tenths of percent three tenths percent a year That's a real number on a 21 trillion dollar economy But and especially if you did that for 30 years it would add up But when you look at the big picture It's rounding air versus all the other things that drive the economy or slow the economy down And so I don't worry I mean, I don't worry about Government actions Governments always do stupid things through my entire life One of the things that distinguishes the united states is We tend to do less stupid things than the rest of the world Which is appalling when you think about it, right? It's like wow and yet So we carry on we We're more powerful than their mistakes And their mistakes are serial. They're not limited democrats are not limited to republicans. They're not limited to today It's always been there. So I don't worry about that. That doesn't mean I don't have an opinion But I don't worry about that um What do I worry about? Here's a thought that should terrify everybody for a moment Which is what if delta is a really mild variant in the big scheme of things That 10 years from now we're doing an episode and we look back and say remember how mild delta was How non contagious delta was how non virulent delta was Because future variations became even more virulent And more transmittable, right? So there is this sense floating around That delta is as virulent as it'll get. Well, we don't know that I hope it's true. We don't know that And it's very possible that two years from now because this isn't going to go away Biologically we we may live with it perfectly over the next two years And then another variation comes up that really hammers us. So that worries me The reason I don't slit my wrist over that is The breakthrough of mrna is stunning and The speed with which they can address such things Is stunning in terms of coming up with Reasonably effective vaccines now it'll be expensive, right? But so I don't worry about that. What else should people worry? Okay, all right repeat what you said in washington. I you broke up right there's a there's an old phrase I think it's a tribute to the coatbill, but i'm not sure which is no man's sake while the legislature is in session And that's been a good crude guide To my view of the world By the way, it doesn't say no man's safe while the democrats are in session or the republicans or the tories or the liberals You know, it's just it's a broad statement So peter let's say somebody's in a position to Invest they've they've done a good job. They're moderately successful. They've saved money Knowing how things look right now Where would be the best places for them to invest to grow their money and protect their their wealth Get in get in assets get in real assets. I wouldn't do bonds Get in real assets. That could be real estate. It could be a really good company, right? A really good company is in the real economy, right? They're selling things that ever hire prices as things go and and they'll be bad years and good years I would say get in real assets and I would Ten to want to get into less volatile real assets But for example, bitcoin is not a real asset, right? It's it's an asset But it's not a real asset. There's no cash flow. There's no whatever whatever doesn't mean it's a dumb investment I can't figure it out. But there's a lot of things I can't figure out in the world Um I would get in real assets. So I would say and Get in real assets Get in with with modest leverage or no leverage depending on your situation And be in it for the long term. There is so much money in the system that has been put in by the fed It's been put in by the government That I think over the next five years multiples expand cap rates go down The price of a hotel room will go up like this I don't know exactly when I don't know exactly which assets by how much But money is going to chase assets And when it does it's going to bid the price of those assets up And I want to own assets get assets Don't put yourself in a position Where you've borrowed a lot of money And if I'm wrong by a year you can't Right, you know service your debt Make sure you can easily and I mean easily service your debt And collect assets and you could collect assets by going on wall street Or you could collect assets by doing your own deal or being on a private equity fund or doing somebody else's deal Collect assets to hold do you think you're going to go on back? Here's an interesting you get a lot of people You know, there's this battle between greed and fear, right? We're human It's like the devil on one shoulder and the angel on the other in our life, right? Greed and fear greed and fear greed and fear. Okay, so People have this tendency to think They talk about this especially more in the stock market, but also in real estate cap rates Um, we're in a period where greed is winning over fear, right? People have lost their fear We aren't even close to people losing their fear. How do I know that? We have astronomically All-time high cash holdings by individuals and businesses You don't have huge cash holdings When greed is rampant, right because when greed is rampant You'd be getting out of cash and into Anything right any and everything Well, that's not what we see We see that people are holding all-time records amounts of cash. So we aren't even close to greed Really winning and similarly banks have staggering amounts of lending capacity Well, normally when greed is really winning Banks are lending like mad. Well banks aren't lending like man right now When will asset values really take off when greed takes over? When the belief the trees grow to the sky takes over and it will Right, it will at least temporarily and then it'll swing back So I think the ride on asset prices is Inevitable And it's going to be large I just don't know exactly when it happens And I just want to have assets when it does Now we've seen the travel industry sort of recover Gradually here. Is there any other industries you see Now starting to recover to kind of look into as far as you know kind of coming back full circle Well industrial properties are already back, right? They not they only They only suffered for about two months last year and then really came back and they're being fed by Demand exceeding supply because Every time a short a shirt is sold through online rather than In a store it takes about three times the amount of warehouse space And that's caused a shortfall. They have wider aisles. They have assembly space They have shipping areas much more than the typical warehouse does to serve as a brick store. So That is clearly recovered multifamily, I think has Pretty fully recovered Has that doesn't mean it's not going to perform well Retail by and large at least good retail fully recovered Um not way ahead of itself, but it's fully recovered the two sectors that have hospitality as you say is Moving forward The fact that we're opening our borders. I think it's november 1st To vaccinated foreigners will help Will definitely help because it won't help demoing so much, right? But it'll help new york city san francisco Orlando, etc a lot vegas I think vegas is back to about 90 percent of 2019 But they're not getting much foreign. They're getting some from mexico a little from canada But we're not allowing the others in so as that happens. They'll benefit New york will benefit from a travel side so that the international side opening will help The two sectors that are Stumbling still for lack of a better phrase Senior care Right, not so much independent living senior but senior care And the problems they are twofold, right? Do you really want to put your grandmother In a place where two weeks afterwards the place may be shut down And you're not going to be able to visit your grandmother for a month And so you go, well, I don't know. I'm going to wait and see why am I going to put her in just to have them Shut her away from everybody, right? And so that's in the back of a lot of people's mind dampening demand and the other thing is caregivers The last numbers I saw were like what 45 to 55 percent of caregivers Are vaccinated and you know your grandmother is in a vulnerable population And whatever your views are on vaccination. I want the people around my grandmother Not to get her sick You don't know where those people are at night or during the day, etc Right and that's dampening the demand in senior now. I think that will be resolved But it's going to take a little time. There's still recovery that could happen there There's some people having debt come due so there could be some stress the other is office and office as you know is either wildly overpriced or wildly underpriced it's kind of And what you see in the pricing is kind of the weighted average of those two It's wildly underpriced if you think by 2024 It's basically like 2019 Namely you go to the office everybody's there Sure, some of the people are working from home. Some are traveling, right? But basically everybody's there in the way it was in 2019 if you believe that which I do office is wildly underpriced wildly If on the other hand you say no After a year and a half two years of being online and doing this People are never going to fully go back to the office. Maybe it goes back to 60 percent of what it was That's 60 percent will largely concentrate in the better buildings right not in the weaker buildings and But with 60 it'll never be what it was If you believe that it's wildly overpriced It's hard to be in between right because it's either or And I was just having a conversation with a client today saying Um, I believe it's wildly underpriced But in the case of this client you have fiduciary money People are not giving you money to speculate And I wouldn't double down. We already have some office exposure. I wouldn't double down if you're a young person with Personal like your your grandma died and left you three hundred three thousand dollars I think going And investing in the REITs the office REITs would be a great play because the worst that happens is It never recovers and the three thousand you got from your grandmother becomes 1500 And the best thing is it becomes nine thousand or eight thousand And it's your own personal money and so office is To be determined I have my own view, but it's to be determined Peter I want to go I want to go back and ask you about the the housing prices and this potential of it continuing to run Um, I saw a chart and and I think it was uh, it's somewhere around the 1970 I must say 1971 ish Where it was comparing housing prices to the average wage You know our average salary that we were making probably the average income or something. Yeah. Yeah, and It's crazy to see what how tiny of an increase we've seen in the average salary or income Over the last three four decades, but yet the housing prices It does at what point do they get out of reach? For a majority of the population or is that even a problem? And are we just going to see a greater gap? Uh, our disparity between the wealthy and the poor so In some ways sometimes economics is right Economics never said that if your income went up by 10 percent you bought 10 percent more of everything Right never said that and it turns out Interestingly, you mentioned 1970. I did my phd thesis at chicago in uh, 1976 70s. Yeah, 76 and one of the things I Found was as income goes up people are going to spend an ever disproportionate amount Trying to upscale their housing, right? That looks obvious today as you look backwards. It wasn't so obvious then And that's because it's something people really want Like university education, right? People have been willing to spend their money on that health care They've really been willing to spend their money on that. So we spend less and less of our money on clothing Even though we buy more clothes clothing is very cheap We spend less and less of our money on technology Even though we buy more technology it's gotten really cheap offsetting that or these items like housing and housing Need not go up faster But if you don't let the supply fully adjust it will so in dallas and houston Historically, it's not risen that much faster than income, right? It's kind of in dallas because it's easy to build there And if you go to california and new york and a lot of other places that make it hard not impossible Make it hard. Guess what? You have a lot of demand not much supply price goes up You add to that that we had a lot of asset inflation From 2014 to 2019 we had a lot of asset price inflation Including on homes and I think you hit it Which is what is asset price inflation means? It means if you own the asset You want asset price inflation. That's one of the big reasons for nimbies, right? If I own my home I don't want to make it easy for you to build because my home goes up more in value, right? so What's happened is You get A four percent increase in your income And you think yep inflation was only two percent. I got a four percent increase I got a two percent real increase Yep, and then you look and housing prices went up by seven percent And then the next year same thing you did better inflation on your wages And yet you're farther behind chasing the house Who's happy and who's unhappy the party that's happy Is the asset owner, right? And the party that's unhappy is the person who's trying to buy the asset That tends to be a generational divide, right? That tends to be people my age own and people your age are trying to own And so it has been a big generational gap and that will continue It is also some because of the down payment part. It also relates to family wealth It used to be that if my income was going up at four percent and home prices were going up at three percent I could Catch up, right? I accumulate enough That can't happen with this fundamental under production Now it does happen in houston in dallas And san Antonio and i'm not just saying texas, but you you get my point, but in the coastal markets the high Nimbio markets It's shameful It's shameful So because of that point, um, I've heard people speculate that Idaho is going to be the best predictor for us on how the rest of the Country is going to pan out because they don't have such Such restrictions. They're building like crazy. I think they also have tons of demands. They have some of the highest demand in the country And they're building faster than or anywhere in the country So a lot of people speculate that what we see happen in Idaho as far as the market and pricing will kind of start to Predict what we will see everywhere else. Do you do you subscribe to that? I don't think it will predict what we're going to see elsewhere because elsewhere is not going to allow Building to keep up with demand. I don't think california is going to allow Supply to keep up with demand. I don't think Santa Barbara do you really think santa barba? Is going to allow building to pick up to keep up with what demand would be no way No way, right? Forget whether they should or shouldn't no way And um, so I don't think it's a good predictor I do think it is a way that Boise and um, and bozeman and do what houston and dallas have done for a long time, which is They're great. What's the greatest competitive advantage of dallas in houston? It's not that they speak texan the greatest advantage is That from a cost point of view housing is affordable Really affordable that means as an employer you don't have to pay outrageous wages To allow your workers to live well, right? You don't have to and That is the secret and that's why dallas in houston have grown a lot faster Than have the california places, but Um, it's it's all about look. It's purposeful, right? It's not unintentional um It's purposeful Don't you think I wish Don't wouldn't it be nice if I could pass a regulation That said no one other than me can ever give advice on anything economic That convenient right can't hurt me and will probably increase the amount I earn right Well, that's what's going on in the nimby places, right? That's the same notion If you got a home great if you want a home that hasn't been built good luck No, do you do you think that they're going to? Raise interest rates anytime soon or do you think they're going to keep them low for a long time? I think they stay low for a long time and might they raise them Yeah, they might raise them essentially from zero to almost zero right you have to be I watched a woman the other day at the gym And I noticed that she was actually peddling the stationary bike faster She was going about a mile an hour with no resistance Instead of a half a mile an hour with no resistance That's kind of the interest rate scenario on the short side You know they might raise it, but it's still effectively nothing It's still going to be a negative rate relative to inflation um So I think on the short end you might see a little the fed has been a terrible predictor of the fed I mean this is not it's just a factual statement the fed has been terrible at predicting Their own interest rates So, you know when they announce after each meeting their dots and I don't even I don't even look at them because They've never predicted themselves If they predicted themselves that would be interesting But this is if they If they're just random in terms of predicting themselves. Why do I care? I did a better job of predicting the fed than the fed did predicting the fed now. How is that possible? I mean It makes you wonder and it's not that I did such a great job It's just that tells you how bad they've been but I do think you'll see the short go up a little bit The long if the fed stops buying bonds In qe there'll be a bit of a rise in the interest rate But by any historic standard on the long end, it'll still be quite low Do you think then it's uh, it's a good idea to if you invest in assets like homes to do Adjustable rate mortgages or do you still think it's a good idea to be safe? Go 30 or fixed and Okay, it's about what your objective is um I this is a philosophical answer rather than anything else My view is I got into the asset. Let's just take single family housing I got into it because I wanted to live there Not because I wanted to speculate on interest rates, right? That's secondary. I got in it because it's a good school district Nice bathroom good kitchen You know, that's why I got into it Lock that in Now may you look back and say oh gee I could have gotten it cheaper. Yeah And by the way, in fact historically I don't know 85 of the time you'd have been better off floating than fixed It's just that that 15 of the time historically can be quite painful, right? so but Probably short term is always not always most of the time been Financially better, but I didn't get into it for that. I got into it for its bathrooms and backyards, etc Fix it, you know, just fix it and the fact that you can prepay Just adds to that. Namely if it gets even cheaper prepay and refi And I feel the same way by the way on an apartment bill and I have an apartment complex where we've made a lot of money in the noi and cap rate sense Unfortunately the debt we locked in on exactly the philosophy. I just said right the philosophy was We're investing because we like the market. We like the asset. We like what we can do with it And I don't want to speculate on interest rates because either I'm going to be right or wrong on interest rates So we locked it in for 12 years And I think we still have six years to go So it doesn't take a genius to figure out that the prepayment penalty is pretty stunning because it's not prepayable. So it's a Fanny product and we're sitting here. We're essentially all the profits We would have made if we sell the property will be eaten up on the prepayment penalty You know, okay fine. What we'll do is hang on to the property keep cash flowing. We're cash flowing very nicely And you know just that's not such a bad thing But I can't monetize the game I can monetize the cash flow, but not the game And you say, well gee, don't you wish you'd done floating? Well, sure if I knew the rates were going down, but I had You don't know I mean, you don't know and so I wanted to make sure I was safe with the asset. That's my general philosophy on on debt Peter have one last selfish question to ask Give me three to five of your favorite places to invest in real estate in the country right now Okay, so they would all They would all be multifamily um I think by the way, I'm not going to do the office because that's a very different risk profile in the way I describe I prefer to hear single family multifamily investment. That's yeah, so I think they would all be Well, let me put it this way. They'd all be rental the only reason I would gravitate to multi Rather than single Is I can get freddy and fanny financing quite effectively, right? I there's a deep Market for multi Relative to the borrowing market for single. That's the only distinction The demand side is very good for both the supply side Good balance of both And I would gravitate And I'm just going to name places um off time I had places like chattanooga um Huntsville alabama Why because I can borrow basically at the same rate And the same amount of debt LTV in those markets as I can in the major markets And I pick up 25 to 50 basis points more yield Going in and if you do the math on that And you're talking about say i'm going to hold it 10 years that extra Cash flow matters a lot right now if I was going to flip in a year That extra cash flow for a year doesn't matter much, right? But if you're going to and that's true whether it's short term or long term, right? If you're going to then hold it though for 10 years, I just think The weight of money is going to push up the value I don't like the supply demand any different in those kind of markets than the others But I like the yield and I like the spread of the yield First is my freddy fanny kind of benchmark on multi and that's the only reason I would prefer The multi Over the single is I can just get much better freddy fanny kind of depth Of the financing market and lock in that spread that's But I like the single family Rental side as long as you operationally can do it. I like that Good spread and so forth. It's just not as deep a debt market Excellent. Well, we appreciate your expertise. It's always a blast talking to you. Peter. This is great. Thank you very much Thanks a lot guys. Have a great day