Welcome to Passive Real Estate Investing. You guys, I have an amazing episode for you today. I’ve got Aaron Chapman here with me today, and we just got done having the most interesting conversation with Richard Duncan. And I’m not gonna spoil anything for you guys ’cause I definitely want you guys to tune in and listen. But there are a few takeaways that I just wanted to mention upfront. Number one, not only is Richard a beautiful storyteller, but his explaining things that are the unexplainable to me, what’s going on right now in this country with the tariffs and what to expect. He breaks it down so eloquently that he had me captured. And so I was really invested in the way that he tells the story in this episode. So what do you think, Aaron, what is your takeaway from our conversation with Richard?
Number one, it was an absolute pleasure to have a conversation with a guy like Richard that I’ve been hearing over the years on podcasts and, you know, subscribe to his, his newsletter, if you will. And to hear his take on what’s going in the background to really get into those deep explanations and also, you know, kind of understand what his philosophy is on the potential outcomes was really, really cool to have. But what I think was the best we could possibly get, and I know it’s towards the tail end of it, no matter what you listen to guys at the tail end, he agrees with what we’ve been talking all along. Real estate, real estate, real estate. Get hard assets, hard assets that can create a return for you. It’s unbelievable. There’s a lot of hard assets out there, but you’re not gonna make returns on them.
You’re not gonna get third parties to pay for them for you real estate’s that space. So no matter what the outcome is of the tariffs, no matter what the outcome is it globally, as far as the economies are concerned, where we, where they’re gonna be in a, in a true recession, not the mislabeled recessions or the fact that they’ve changed what a recession meaning is, which a matter of where do you want to focus your own personal energy and attention and your personal assets. And I’m gonna just continue to stay what I’ve been saying. Let’s go after the real estate, find the deals. The deals are still out there. It doesn’t matter what the interest rates are, it doesn’t matter you being focused. And this is just another proof of that.
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Welcome to Passive Real Estate Investing. I’m Melissa Nash and I am here with my co-host Aaron Chapman. You might recognize his voice and his name as he has been a part of this podcast for at least nine years now. He is bringing his 27 years in real estate lending, studying of markets, bonds, and mortgage backed securities. If there’s one thing he that he knows it is while the markets move, opportunity never disappears, it just shifts. And we have a third voice on the podcast today. We are also joined by Richard Duncan, a leading voice in economic analysis to help us decode the current environment for real estate investors and beyond at a global macro level.
So welcome to the show, Richard. It is a pleasure to have you here today.
Thanks, Melissa. It’s great to meet you guys. Thanks for having me.
Absolutely. So Aaron, I’m gonna have you handle a lot of the questions for Richard ’cause I know you’re dying to get into the weeds with him and we’re about to learn some pretty big things here. Before we do that, Richard, if you don’t mind, can you give us a little context on your background and what got you so interested in global macro economics. Most people pick careers that they’re interested in. So how did you go down that path?
Okay, so I, I grew up in Kentucky, went to Vanderbilt and had the very good luck of not getting into law school, <laugh> and plan BI applied and didn’t get in Plan B, turned out to be going to Europe and I ended up finding a job in Paris as a chauffeur. Made quite a lot of money doing that and was able to travel around the world for more than a year. And during that time I saw Europe and Middle East and spent a couple of months in Thailand and Malaysia and Singapore and wow, it was booming. This was the early 1980s. And I realized go east young man. So I went back to business school for a couple of years and at Babson and when I finished that I flew to Hong Kong and found a job as a securities analyst with doing research on listed Hong Kong stocks.
And from, I did that for a couple of years in Hong Kong and then a CO Singapore, then they sent me to Bangkok and I was a securities analyst here. So I was able to see just within three or four years, three different countries and to see just at a time when they were booming, extraordinary growth. Thailand was growing at 10% a year. When I got here, the first 12 months I was in Hong Kong, the stock market went up 100% and the GDP there grew 13% that first year. And then at the end of that first year, I woke up one morning, wall Street had fallen 23% overnight. And when Hong Kong reopened, it was down 50%. And my crazy speculative young man investments were down about 90%. So I I I was immediately hooked. It was fascinating to watch these global cycles. And
After I left Thailand, the Asia crisis happened and Asia went into a severe meltdown. I started calling up the IMF and the US Treasury Department and the World Bank, and I harassed them until it eventually the IMF hired me for a three week consulting job. And then the World Bank hired me and I worked in Washington there for a couple of years on issues related to the Asia crisis. And then in 2000 I went back to Hong Kong again as a securities analyst. Then I switched over to the buy side, to the fund management side and I ended up as the global head of investment strategy for A BN Amro Asset Management based in London looking at all asset classes globally. That’s a very big Dutch fund management company. And I did that for a few years and then joined a hedge fund in Singapore. And what I’ve been doing for the last 13 years, I’ve started my own business is called Macro Watch. Every couple of weeks I upload a new video with about 30 or 40 charts and I sell this on a subscription basis. And that’s what I, that’s my business now.
Amazing. Let’s get into it and we’ll give our listeners at the end, I know that you have something special for them to be a part of getting that newsletter that you have, so we’ll make sure that we say that at the end there for everybody. But you know, Aaron, I’m just gonna let you take the lead here, jump, jump in, introduce yourself to Richard and our listeners and let’s get into this.
Very, very cool. Well, it’s a pleasure to be on here, Richard, again, thank you for taking the time to spend this evening. Well, our evening, your morning with us. I know you’re probably having some tea out on the, on the veranda, looking over the rice patties. We are sitting in offices in Arizona. So that being a situation I gotta at least point out to the listeners, especially younger listeners guys, listen to what he just said about the IMF and, and the World Bank. The guy tired those people out trying to get connected with somebody to get the job that he wanted. You can’t give up all kind that kind of stuff. I think that what we’re dealing with, a lot of people just don’t have the tenacity anymore to do what you did. And I think that people remind, be reminded of that. I mean, even internationally, the tenacity you had to make that happen. So that’s awesome. I definitely applaud that. Well, and I am, and I am a subscriber to Macro Watch. I listened I and watch your slides. I’ve heard you saw some other podcasts sometime back. And the things that you’re saying today are definitely bringing up some concern. So we have to talk about the tariffs and how you see the proposed tariffs by the administration affecting the global economic momentum and more specifically US consumer inflation.
Okay, so I, I’ve written four books and the first one was called The Dollar Crisis in 2002. And the theme of the dollar crisis was that the US sprayed deficit was destabilizing the global economy. You know, the trade deficit, the US has a big trade deficit. It buys a lot more from other countries than other countries buy from the us. Yes. So when we have a big trade deficit, the surplus countries get a lot of dollars and that tends to make their economies boom and boom and eventually bubble and pop. But at the same time, once they have those dollar assets, you know, they sell their goods in America, they get paid in dollars, they take those dollars back to wherever they came from, China mostly these days. And then they’ve got the dollars and they’ve got to do something with these dollars. And what they have to do is they have to buy US dollar denominated assets.
And so not only does having a trade surplus send money into those countries and blow those countries into bubbles, it comes, they reinvested in the US and and US Treasury bonds and, and stocks that pushes up the price of the treasury bonds and it pushes down the interest rates on treasury bonds and it tends to blow the US into a bubble as well. And, and in addition to all of this, by importing the US imports from very low wage countries, so that pushes down the price of the things that everyone buys in the United States, and that drives down inflation and that drives down interest rates, which also helps push up home prices and stock prices. So this has been going on now since the mid 1980s. I became very concerned about it in 2002 and wrote the dollar crisis and forecasting that this was going to end in disaster.
And in 2008, the bubble light predicted did blow up that we didn’t have a complete meltdown at that time at a complete, we, it was awful as everyone would remember, all the banks failed and had to be saved by the government, 10% unemployment. It was a complete disaster stock market crash. But we didn’t have a great depression. And the reason we didn’t have a great depression is because the government jumped in and had trillion dollar budget deficits. And the Fed created $4 trillion or so over the next few years through quantitative easing. And they reflated this bubble. They prevented all the banks from failing. So we didn’t collapse. So this bubble has just kept growing and growing and they did the same thing again in 2020. When Covid hit, again, trillion dollar government budget deficits and trillion, another $5 trillion of money creation by the Fed, they reflated the bubble.
And so, so we’ve got a huge global bubble. The problem is now the, the fuel that the liquidity that keeps this bubble inflated is the US trade deficit or the current account deficit, which is more or less the same thing as the trade deficit. Last year the US current account deficit was $1.1 trillion. So that threw out $1.1 trillion into the global economy, making them have lots of liquidity and economic growth. And then they took the $1.1 trillion and reinvested it in US dollar denominated assets, helping push the stock market up and helping push bond prices up and bond yields down. So now the problem is, is President Trump’s main objective in life it seems is to bring this trade deficit back to zero. And if he brings the trade deficit back to zero by very high tariffs and by devaluing the dollar, which is what he in intends to do, then this, the $1.1 trillion of that went out into the global economy and came back into the US last year, it’s not going to do that this next year. If he succeeds in balancing the trade deficit, then that’s going to cut off the source of global liquidity that is keeping the global economic bubble inflated.
You literally went down almost all the stuff I wanted to chat about, but put it all into one and, and it doesn’t sound like you took more than two breaths <laugh>. So one of the things that when you’re talking about all these things like your, your concern was way back in the eighties we started seeing this, the trade deficit, what it was creating for us, and it just seemed to continue to compound over the years. Right? With what, and then you get to the crash of 2008, do you think it could have been a remedy for that bubble that was starting? If they would’ve just let it lie? Would it been advisable to let it lie instead to do the quantitative easing that the, that the Fed did? ’cause We all know the effect of quantitative easing not only reinflating the bottle kicking the can down the road, giving a false sense of value of the dollar, and then pushing, pushing prices of real estate through the roof and bringing the cost of money down so low and creating so many, so much more adding more to the monetary system just problem after problem after problem.
I think what, what could, what could have been done during that time to have, would it, would there have been a better remedy?
You know, I, I think that was the best remedy because, you know, it gets, a lot of everyone can see the bad things that have been connected to that quantitative easing at that time, including increasing income inequality. But, and so that’s what is generally talked about. But what people don’t understand is what would’ve happened if they had not done that. And to see what would’ve happened. We just, we only need to look back to 1930 during the World War I, you know, 19 14, 19 17 1918, the gold standard broke down in World War I and all of the European countries started printing a lot of money and the US started selling them a lot of war materials because the US didn’t enter the war until 1917. And so all of this money printing and huge government budget deficit to fight the war, world War I, this led to a global credit bubble that we call the Roaring Twenties.
Then in all the credit couldn’t, starting in 1930, the credit couldn’t be repaid. It was kind of a 2008 moment. And at that time, all the policy makers believed in laissez-faire capitalism and letting market forces work. So they more or less stepped back and let market forces work and market forces did work. The the economy, well, all the bank, a third of all the banks failed. There was no deposit insurance. Anyone who had money in those banks lost all of their savings. This caused a great depression in the US and globally. So the size of the US economy shrank by 50% and unemployment went up to 25% and it stayed there. Well, it ranged between 25% and 11% for the entire 1930s. And during the 1930s global trade collapsed because of the tariff war. And Germany took over Europe and Japan took over Asia and then World War II started, and in World War ii, 60 million people died.
And it was only when the US started entering World War ii that it started having very large fiscal stimulus and very large paper money creation. And it was only then and only that that ended the Great Depression, no-tilling how much longer the Great Depression would’ve lasted had it not been for that massive stimulus. So it was all of that stimulus during World War II that ended the Great Depression. So that was what would’ve happened in 2008 if they had not reflated the bubble, if they’d let the bubble implode then, or if they’d let the bubble pop in 2020 or if they let the bubble pop today, that’s what’s going to happen.
Is that seem like that’s going to have to be in a necessary evil at some point though?
Well, I think, you know, it’s always better to die tomorrow than to die today. <Laugh>,
With you. I’m in the, I am in the can kicking camp. I mean we it’s been what, 16 years since 2008? Yeah, I’ve enjoyed the last 16 years. I didn’t even have an iPhone in 2008. No, we would’ve missed all of the Game of Thrones <laugh>. Look at all the good things that have happened over the last 16 years. And I don’t see any reason why this can’t go on for quite a long time. And if it does go on for quite a long time, then we have the possibility of finding a way to grow our way out of this. I believe the way to grow is the right strategy is not to let the bubble pop. That’s not the right approach. The right approach is to find ways to make the economy grow very much faster so that we can actually grow out of our debt problem and live happily ever
After. Okay, so I can get behind that. It’s delay the outcome long enough to find a better solution. What you’re saying right now. Exactly. The solution we have right now is more, more blunt instruments is what it sounds like. And because of that blunt instrument being used, we could be in a position where, you know, we’re gonna have that inevitable happen now without any better answers and just take it on the chin and bleed it out, hopefully short enough that we heal, but not so long that we bleed out and die.
You know, some people think it, we need to take our medicine, you know, we’ve, we’ve sinned with our budget deficits and going off the gold standard, therefore we must punish, be punished and suffer and we’ll suffer a little bit for a couple of years and then we’ll be back in some sort of really comfortable laissez-faire Garden of Eden.
Well, I’ve been into taking me my medicine or our medicine camp for a long time, say guys maybe if we were to just held out and fought through that, but I don’t think we were positioned as a country to have been able to take that on in 2008, especially since we had so much of the globe involved in it. But I wasn’t certain, I’ve not have been a hundred percent on the side of, well, $8.9 trillion worth of stimulus and then creating so much and, and putting so much into the monetary side of thing and dropping rates so, so low and, and creating what we did. I don’t know that I could get behind that much either, but I kind of, I do like your thought process of this will at least take us to a point, hopefully to we find a better, better understanding. Now, since you brought up the gold standard a couple of times, I’m really curious, this is something I’ve been very, very curious about, and though there’s a lot of people that are curious about this and there’s a lot of people sitting around the bar drawn on this whole thing, a hypothetical as if the US had never left the gold standard, how different would we be as far as the economic landscape and would that have impacted our ability to, to maintain a position as a global superpower?
Yeah, so that’s a really interesting question. And I really believe that origin of our problems was World War I now in World War I, the classical gold standard broke down. Mm-Hmm <affirmative> that caused the roaring twenties. As I said, the Roaring twenties caused the Great Depression. And when Franklin Roosevelt was elected president, he confiscated everybody’s gold and took effectively, took the US off the gold standard. And then eventually after the war was won, we created the Bretton Woods system. And in the Bretton Woods system, the dollar was pegged to gold at a fixed exchange rate, $35 an ounce and all the other currencies in the world were pegged to the dollar. So we were more or less back on a gold standard during Bretton Woods, the Bretton Woods era, which lasted from 1945 until 1971 when Nixon took us off the Brett and Woods system. The reason Nixon took us off the Brett and Woods system is because the US had been sending a lot of foreign aid to Vietnam in particular to fight the Vietnam War.
And also US companies had been investing in Europe, American banks and and companies had been setting up business in, in Europe and sending money dollars into Europe. So there were so many dollars outside the United States. By 1971, there were at least four times as many dollars overseas as the US had gold available to allow the conversion of those dollars into our gold. Now, we had promised to allow anyone, any foreign government who had dollars, we’d promised them that they could convert their dollars into gold. But by 1971, we just didn’t have enough gold to keep that promise. And Nixon said, okay, you know, sorry about that, but we made you that promise but we can’t keep it. And now you know, it’s our currency, but it’s your problem. And after that, we’ve just been on this wild floating exchange rate regime, it’s hard to see, you know, at what point this whole thing got under, where could we have stopped it?
You know, maybe if they had found a way to eg the dollar to gold at a different exchange rate in 1971 or come to some sort of new international accord, then perhaps things would’ve stabilized again. But the thing about what we’ve evolved into the Brett Wood system was the international monetary system. When it broke down, it evolved into what I call and what I, I think is generally called the dollar standard international monetary system. Today is the dollar standard. And the chief characteristic of the dollar standard is that it allows the United States to buy things from other countries and it doesn’t have to pay with gold anymore, it can just pay with dollar bills or which are more realistically treasury bonds denominated in dollar bills. So this has been, you know, fantastic for the whole world because suddenly the US doesn’t have to have a trade balance anymore.
It can have very large trade deficits. And this has allowed all the trade surplus countries in Asia. You know, I’ve lived in Asia most of the time since the mid 1980s and I’ve experienced what’s, you know, the greatest economic boom in history before I got here. First it was Japan that had the boom because of its trade surplus with the US and then Taiwan and then I got here, it started in China and then Thailand and Malaysia, Indonesia, and now Vietnam and moving to India, all of these countries have had very rapid economic growth because they were able to sell so many things to the United States. And the United States was able to afford to buy all these things because it didn’t have to pay with real money. It could just pay with paper dollars. And so since the mid 1980s, the cumulative trade deficit, you know, add the trade deficit together every year adds up to $16 trillion.
So the rest of the world has received $16 trillion more than they would have if we’d been on a gold standard. ’cause A gold standard must have balanced trade. If you have a deficit under a gold standard, you lose your gold. And that just doesn’t work because the gold backs the money. So when you have a gold standard, you have balanced trade. But because the gold standard, the Bretton Wood system broke down, it allowed the United States to buy $16 trillion of goods from other countries on credit. This allowed the rest of the world to grow. And boom, in the greatest economic boom in history is pulled literally hundreds of millions of people around me out of poverty. And at the same time that $16 billion got reinvested in US dollar denominated assets like bonds and stocks creating a very big wealth bubble in the United States, and also pushing down inflation because of the cheap imported goods made with low cost labor.
So the inflation stayed low and the interest rates stayed low and it’s created this great global bubble and much, much, much more rapid global economic growth than we would’ve had otherwise. If we had stayed on a gold standard, the global economy would be very much smaller today, China would look nothing like it does today. When I first saw China in 1986, it was a very poor, I’m not even sure I would call it a developing economy. And today Shanghai looks like the Wizard of Oz, the Emerald City, you know, this has much better infrastructure than the US amazing skyscrapers. If we stayed on the gold standard China would still be a poor country, which in many ways would be a good thing given that they’re now a very big threat to US national security. But at the same time, the Soviet Union might not have collapsed.
We’d still probably be dealing with the Soviet Union because of this dollar standard. President Reagan rippled the US government debt in eight years and spent so much money on the military, the Soviet Union couldn’t keep up and they collapsed and you know, global Soviet aggression and communism and that threat to US national security, that wouldn’t have been possible if we’d stayed on a gold standard. So the Soviet Union might still be around threatening us. Eastern Europe still might be, you know, part of the Soviet block. But we wouldn’t have a big global credit bubble that we have now. Things,
It definitely sounds like a damned if you do, damned if you don’t situation with what we’re dealing with here. We wouldn’t know the difference, right? If we stayed on the gold standard, we wouldn’t known the difference. We, we’ve just known that we have the, the Soviet
People like to find scapegoats people to blame for where we are at the moment. The truth is, this just evolved naturally. It just e evolved market forces. You know, it was profitable for US corporations to move their factories to low wage countries because the Americans wanted to buy the cheapest goods possible. And they found out that they could do this and that the trade deficit didn’t seem to be any problem. And we could run very big government budget deficits. I think it was Dick Cheney who said, Reagan proved that deficit budget deficits don’t matter. So there’s no one person, I mean our system naturally evolved, you know, organisms evolved, economic systems evolved. Our economic system, I like to say evolved from capitalism into creditism. Capitalism was an economic system where gold was money and businessmen would invest, some of them would make a profit, they would accumulate that profit as capital, hence capitalism and repeat that.
That was the growth dynamic that drove economic growth under capitalism. But that’s not the way our economic system works anymore. Now that we’re on the dollar standard. Our economic system works like this through credit creation and consumption and more credit creation and more consumption. And that’s the dynamic that drives economic growth under our new economic system, creditism, our new economic system must have credit growth or it’s going to implode into a depression. For instance, if you take all the debt in the United States, not just the government debt, but all everybody’s debt, the households, the corporations, Fannie Mae and Freddie Mac State and local government, all the financial sector. Now those are the big ones and the government, all that is total credit or total debt. Now total debt must equal total credit, two sides of the same coin. So total debt in the US first went through $1 trillion in 1964. Last year it went through $100 trillion. So we’ve had a 100 fold increase in debt in 60 years and credit in 60 years. And that explosion of credit has created the world we live in. The whole world is floating on top of this big credit bubble. All of the jobs, all of the stocks, all of the property values were all floating on the top of this bubble.
Oh one, I didn’t know about that when it came to, for some reason I’d never heard that. Maybe just didn’t travel in that particular area to hear it or didn’t hear you talk about it before. Before we had that four to one scenario coming up in 1971 that is almost forced to take off the gold standard. ’cause If people redeemed, it would’ve crippled us as a country. So we had to give that international pound sand scenario, then go down the path, like you said, creditism, we’re been operating on a checkbook for a credit line and paying the payments with the credit line for so long that it’s just become the norm. And again, if we don’t have that, it would completely obliterate everything. So I’ve, you, you, you make an argument for just keep things going the way it’s going and hope for the best.
Yeah. And so let’s talk about why President Trump’s policies are threatened to pop this bubble. Let me say from the beginning, I try to be as non-political as possible in, in all of my work. I don’t take sides in politics and I don’t consider my views. They have no political intention whatsoever. And President Trump is the president of the United States and nothing’s going to change that. So what I say, I, I don’t intend it to have any political implications. So with that out of the way, here are the problems. So here’s President Trump’s strategy regarding international trade. It seems that it was spelled out completely in a paper that was published by a man called Steven Moran who is now chairman of the President’s Council of Economic Advisors. So that’s a big deal. He wrote this paper in November and it was called a User’s Guide for Restructuring the Global Trading System or something like that.
And it laid out three step plan. So here are the three steps, step one, and this is the purpose is to bring back manufacturing to the United States. That’s one objective of this plan is to re industrialize the United States. The other objective is to contain China and stop China’s economic growth so that China won’t be a threat to US National security as it is now. It is a growing threat to US national security. I agree with both of those goals. I think that’s, I think we do need to have more, you know, a lot more manufacturing in the US and I think we do need to stop China because they are a real threat to US national security and a growing threat. And so those are the goals and here are the three steps to do that. Step one is to put very, very high tariffs on all of the United States trading partners.
Tick did that. Step two is to tell all of our trading partners that if they retaliate and put up their own tariffs against the US goods, then the United States is not going to protect them militarily anymore. You know, forget nato. We have these treaty obligations to defend our European allies, our Japanese and Korean allies and all allies all around the world. Well if you don’t go along with this plan, you’re not going to get us protection. And they’ve made that very clear now. So Europe of course is terrified because they can’t defend themselves against Russia. So that’s step two. We can put a tick besides step two. Step three is then to have negotiations with all of the US trading partners with two objectives. One is to get them to agree to devalue the dollar, very sharply reduce the value of the dollar against other currencies.
And the other part of these negotiations is to pressure them into joining the United States in putting very high tariffs on China themselves. So the US wants Europe to put very high tariffs on China. It wants all the Asian trading partners, the US wants everybody that it trades with who’s going to stay within the US security umbrella in order to trade with the US and be protected by the us. You must put very high trade tariffs on China, just the way the United States is doing. As you know, currently the US has 145% tariffs on Chinese goods, which effectively means that there’s no trade currently happening between China and the United States or almost none. So those are the three steps. Step one is done. We’ve announced very high tariffs. Step two is done. We’ve threatened all of our trading partners that we won’t protect them if they don’t go along with us.
And now the negotiations are taking part to devalue the dollar and to force the other countries to put Thai tariffs on China. And that’s the negotiations that’s currently happening. Those are the three steps is a complete blueprint to Trump’s tariff strategy. I made a macro watch video on this a month ago called a blueprint to Trump’s tariff strategy. So that’s how to understand what his objectives are and what’s going on now. But of course there are big problems with this. First and foremost, everyone knows, you know, I’m not the only person who has read that paper. I can guarantee you everyone who is important in Chinese policy circles has read that paper many times. They understand the strategy. All of the central bankers around the world understand that strategy. All of the global hedge funds and global banks and everyone who subscribes to macro watch my video newsletter, they understand the strategy.
And so the only sensible thing to do since President Trump wants to devalue the dollar is to get out of your dollar assets before the dollar loses even more value. The dollar’s already down 10% from its peak in January. It could fall another 30 or 40% hit new all time lows because President Trump wants it to fall and because Stephen Moran has laid out a strategy to make it fall. And then there are other reasons why it looks like the dollar’s going to fall. So this is going to send the United States into recession and when recession happens, then unemployment’s going to jump. In fact, when unemployment goes out, the fed will start cutting rates when the fed cuts rates, that means that the dollar, the difference between US interest rates and foreign interest rates will become smaller. The interest rate differential between the dollar and other currencies will, will lessen. And so when, when the interest rates in the US fall, that makes the dollar less attractive. So that’s another reason the dollar is likely to fall. And as I mentioned above, if President Trump’s current policies are successful and they actually result in the US trade deficit becoming smaller, that will throw off.
That’s evident now in seeing what gold is doing and where people are moving their capital. We saw that move out of stocks it seems like in bonds in tandem, which is normally not the doesn’t happen. You usually normally don’t see them both go down together or go up together. So we did see some sort of movement to the last month to that effect and it seemed like people are clearly hedging
Precisely.
One, two questions. One, is there any chance in your mind that the process that they’re going through or the the approach they’re taking does actually work and help balance that, that that trade deficit and actually not have the, the negative impact that you’re referencing?
Anything is possible and I, I certainly don’t intend to claim that I’m all knowing, you know, I could certainly be wrong, but you know, it could all work out wonderfully and I think
That’s more of a grace of God kind of situation to be honest with the way you’re painting. I’m like, well, you know, I mean.
It could work, but I do see the points you’re trying to make. What would you do if, say, if, if President Trump brought you in and say Listen, can you please get, this is the map we’ve been operating off of. It’s clear that your market watch your macro watch. People know China knows the central bankers know what we’re doing. They all see our playbook. What do we gotta do to throw in a pivot in here to be more successful with what we’re trying to accomplish?
Great question. Let me please tell you instead how I think this is actually going to, to play out the timeline of what is probably going to happen. Because after what I’ve been publishing on my macro watch videos, I’m pretty certain President Trump won’t be inviting me to the White House anytime soon. <Laugh>,
He let no, he let no mark come hang out. So who knows? I heard that was a good conversation,
But here’s what I think is likely to happen. So first we’re going to have stagflation in the us These tariffs are going to cause a big spike in inflation and it’s going to cause it quite a recession. Then that’s going to cause unemployment to go up and then it’s going to cause corporate profits to go down and the stock market to go down. And so it’s going to be quite hard and the dollar is going to go down. Some of the banks are hedge funds or someone’s going to blow up and at that point we’re going to be back where we were in 2008. You know, things start to melt down in the financial system and at that point they’re going to have to make a choice. Do we want to do what we did in 1930 and have a great depression without end or do we want to do what we did in 2008 and reflate this bubble?
So I’m pretty sure they’re gonna choose to do what they did in 2008. First. I think they’re going to have to reverse all of these policies. So they put in place, remove the tariffs in the trade war, stop Doge, hire a bunch of government employees back and have very big fiscal stimulus like trillion dollar, you know, the budget deficits already. And they’re going to have to relaunch quantitative easing. We’re going to have a tariff round of quantitative easing of another $5 trillion. And that’s I think what’s going to happen. But the consequences of that will be inflationary. We’ll get a new round of quantitative easing, which will create a lot of paper money and we’ve got this global supply shock of huge tariffs on China preventing goods from entering the US and therefore it’s going to be very inflationary. Again, that will prevent a great depression, but it’s going to cause very high rates of inflation. That’s how I think this is going to play out.
So what actions would you advise investors to take right now? I mean if we’re, if you’ve got painting that picture and it’s quite the picture you were able to paint, you know, we’ve got real estate investors that have capital they’re wanting to deploy into real estate this year and what advice would you give them? Giving what we’ve covered tariffs, quantitative easing, market cycles, inflation debts, hard assets, all those things. What would you say might be a person’s best move going into third, fourth quarter this year?
So one of the many difficulties in trying to figure out what to do with one’s money is that these things don’t just happen in one instant. For instance, in the near term, I think that stocks and asset prices are going to fall. But once we get to the point where there’s a huge new round of quantitative easing, when that starts, then the stocks and asset prices are all going to inflate again just like they did in the second half of 2020 and 2021. So timing is everything in the near term. I would think that we’re gonna see stock prices fall and the dollar fall. But a little later on it seems that, you know, gold has already moved up a lot because everyone has read Steven Moran’s paper and they’re trying to diversify out of dollars. As I mentioned since 2002 when I wrote the dollar crisis, the dollar has lost 90% of its value against gold.
The same thing is probably going to happen over the next 25 years. But then when we move into the inflationary, when we get the policy response, which I assume will be the same as in 2008, lots of quantitative easing, lots of fiscal stimulus, then the stocks are all going to bounce again. Yep. The Wall Street will foresee this and start buying even before when they know it’s going to happen. So when the policy response happens, then all the asset prices will move up again. But we’ll get hit with high rates of inflation. It will certainly be bad for anyone who’s has cash under the mattress or anyone who ha has bonds of any type. The inflation will erode the value of their cash and their bonds very quickly. But anyone who has debt, for instance, mortgage debt, then high rates of inflation are very useful because you can raise the rent on your renters as the inflation causes prices to move higher.
But your debt is fixed rate interest. So inflation evaporates your debt, it will evaporate the government’s debt, it will evaporate the corporation’s debt, evaporate consumer’s debt, so long as their debt is at fixed rate interest rates like a 30 year fixed rate mortgage or a 15 year fixed rate mortgage. You can think of debt as part of your investment strategy, a good idea to have some debt because if we get this high inflation that I expect, then inflation will evaporate your debt and you’ll be better off as a result of it. But having mortgage debt to buy properties that you can rent out, especially properties like rental houses on pieces of land. ’cause If you have inflation, gold will go up, but land will also go up. So I’m much more in favor of buying a piece of land, but the rental property on top of it, because rather than buying a condo, there’s no limit as to how many condos you can build on planet earth, but there is a fixed amount of land and it’s not really growing. So inflation would be good for people who own a piece of land with a rental house on top of it that they can rent out. So those are some ideas.
Well, you’re conforming what we say a lot. We’ve been saying real estate’s about understanding the environment, not trying to time the market. It’s about about being how much time you’re in the market and you’re confirming, of course we say it constantly, the 30 year fix is a hedge against inflation. It’s, it’s one of the best parts of the deal. Be able to set your costs while you continue to see appreciation in, in price, you get to see appreciation in rents. And yes, you don’t wanna overstretch yourself, never put yourself in that position. You know, Richard, we appreciate you unpacking the realities behind the headlines and we just want our investors to stay informed, stay disciplined, and keep investing with your eyes open. Thank you man. We appreciate this a lot.
Well thank you for giving me the chance to share my views with your listeners. I’ve always enjoyed talking with you guys, so
Thanks. Well you’re helping them to do exactly what I was saying, to stay us disciplined, to keep their eyes open. ’cause Yes, there is a lot to do with potential gloom here, but like you said, for the real estate investors got the hard assets, got that property, they’re not making more dirt. There is huge benefit to people who are thinking ahead and getting involved now. So thank you again, man. Melissa, you you’re gonna bring us home.
Let me just, yeah, let me mention one other thing. Before all of this tariff crisis started, my most recent book was called The Money Revolution: How to Finance the Next American Century. That was my fourth book. It came out in 2022 and I actually had the opportunity to make a speech before 15 members of the House Ways and Means committee in Washington a couple of years back to discuss the ideas in that book. And in that book, it laid out much of what I’ve said here, but it also offered a strategy on how to the United States could grow its way out of this crisis instead of a growth strategy instead of an austerity strategy. I just wanted to mention that I believe that we can grow our way out of this. I think that everyone needs to be thinking about a growth strategy, how to grow our way out.
So the only solution is to <laugh>, you know, let’s kick that can again and then in the meantime figure out a way that we can grow out of this. You know, this is the United States of America. We can solve our problems. We’ve got a lot of smart people and we’ve got a lot of firepower and there’s no reason we have to allow this thing to implode. So there is a solution and I really focus a lot on pushing that solution. But in my macro watch <laugh>, if I can say a bit about my business, macro Watch is a video newsletter. I certainly don’t talk about politics. The purpose of Macro Watch is to teach people how the economy really works. Now because it doesn’t work the way it did when dollars were backed by gold. It doesn’t work the way it did in the 19th century when all the books about capitalism were written because we were on a gold standard then now we’re not.
It works entirely differently. So I teach people to understand for themselves how the economy really works. My videos are very easy to understand. I explain things very clearly and in addition, I have lots and lots of charts which makes things even more easy to understand. The picture is worth a thousand words. So I hope your listeners will go to my website, which is richardduncaneconomics.com. That’s richardduncaneconomics.com. And if they hit the subscribe button, if they would like to subscribe, hit the subscribe button. They’ll be prompted to put in a discount coupon code. It will give them a 50% discount if they use the code lot LOT, like lots of things to talk about LOT. And I think they’ll find this very affordable. I mean, we’re not talking thousands and thousands of dollars yet. This is pretty cheap. They will have immediate access to all of the videos in the Macro Watch archives, which go back to 20 13, 11 years now hundreds of hours of videos explaining how the economy works today. And they’ll get a new video every couple of of weeks for me discussing something important that’s happening currently and how that’s likely to impact asset prices. So I hope they’ll check that out. That’s richardduncaneconomics.com. Use the coupon code lot – LOT for a 50% subscription discount.
And you should subscribe guys. I’m a subscriber, so go there, richardduncaneconomics.com, Lima, Oscar Tango, use that code. It’s definitely worth it. What he gives you is way more than what you’re paying for. Thanks.
That’s very kind of you.
I do, I’m doing a YouTube update twice a week to my clients on mortgage backed securities and how it’s impacting and impacting interest rates. And I used a lot of what you put out there, so I changed the verbiage a little bit so it sounds more Aaron Chapman, so I’m not, but I do appreciate the data you give us. Thank
You very much.
You guys are amazing. You guys literally just handled this. At the end of the day, what I hear and what I’m taking from this is I’m an investor, a long term investor, that’s what I’ve been doing for the last 10 years. I’m gonna continue to put my money to work. I’m gonna continue looking for those deals so that my money works as hard as it can for me. And this is a long-term game. I, I know that I’m not gonna get rich quick. I’m not flipping, I’m buying a nice stable property in the Midwest and I’ve gotta tenant it in there. That’s a blue collar worker where there’s jobs to be had and I’m just gonna kind of run that course and not really deviate from that. ’cause What am I gonna do? Melissa Nash sitting here in Southern California. I can’t lobby for anybody or do anything, but I can protect my family and our generational wealth. And what I can do today is I’m just putting my chin up and continuing on as I’ve been doing.
That’s all a person can do, honestly. And when it comes down to what we’ve been talking about here, guys, the one thing I could definitely caution you about is don’t keep your money just sitting there in cash in the bank. You’re gonna need some to live off of, but invest it, invest it wisely. He gave you some really, really awesome places you can consider when it comes to hard assets. So yeah, I hope, and I would love to have been able to get into some solid debate about some other things and some other theoretical items, but this was not the timing or the the form to be able to get into that, but I’d love to be able to have that opportunity someday. Well, thanks
So much for having me guys. I really enjoyed it.
That is it for today’s episode with Melissa, Aaron and Richard. If you haven’t subscribed to the show, please do. You know, I appreciate you listening. If you haven’t subscribed to the show, please do so. It only takes you a few seconds to click the subscribe button. Thank you for your ratings and reviews. Greatly appreciate it. If you need to get in touch with my team, just reach us at noradarealestate.com and we’re here to help you. So thank you for listening. We’ll see you all on our next episode.
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