Video Closed Captioning:
good morning good afternoon good evening
folks Michael Zuber one rental at a time
back with the one and only Mr Jonathan
twanley how you doing sir I’m doing
great Michael how are you I’m doing well
uh we’re gonna do a quick pivot on topic
number three take take a topic you and I
were doing off air and actually just put
it out there let people respond and this
is about really what’s going on at the
FED right the FED is causing some pain
they told us it was coming at Jackson
Hole congratulations they’re delivering
on what they said uh but I do think
there might be a bigger Mission a bigger
thing that Jerome Powell and his cronies
are doing so I thought maybe we should
talk about it we may or may not agree
which is awesome uh so what what do you
see what do you see is there is there a
bigger theme that he’s going after well
first of all I want to say
congratulations to Jerome Powell for
being a politician who delivers on his
promises he said pain is coming and he
was right so he didn’t lie that’s right
he got delivered so uh kudos to him for
that um he really came through on his
promise right that’s funny
but uh on a more serious note I mean I I
I personally think uh and this is just
my own personal view right it’s not you
know you can dispute it you can say I’m
full of it probably would probably be
right um but I I I think that uh that
the the there has been a
a group within the FED uh that has long
objected to the easy money policy and
they went along with it because uh you
know they try to put on a common front
um and uh you know maybe in the short
term they thought that it was necessary
but they’re they’re bias they’re kind of
professional uh you know education tells
them that these low interest rates for
as long as we’ve had them are bad for
the economy they create a lot of
problems you know the you can trace a
lot of the inequality that we have now
to uh to interest rates you can you can
trace the the run-up in the cost of
housing to artificially lower interest
rates uh and uh that’s caused a lot of
pain it’s benefited a small number of
people and it’s caused a lot of pain to
most Americans and I think that that
that Powell and other people on the FED
uh realize that they need to get
interest rates back to a more historic
level
uh you know and and of course then
there’s always the issue of like what
happens if you have a real recession you
have to drop and you got to have some
place to go right to juice the economy a
bit you got to have some cushion there
um but I think that the larger thing is
that that um
they need interest rates to get back to
something like normal uh and I think
Powell has even sort of hinted at this
saying like the cost of housing is too
high they need to kind of break break
the back of the the housing bubble the
long-term housing bubble right so I
think that but politically it’s been
very difficult for them to raise
interest rates you know partly because
under the the previous couple of fed
chairman they let it go on too long the
markets became addicted to low interest
rates and when they tried to raise in
2018 2019 when they thought that hey the
economy is strong enough to absorb it
which frankly it was but Wall Street
through a hissy fit right and the FED
got scared and they backed off and they
lowered interest you know they went back
to lowering at that point I think now
they see their opportunity with
inflation now they have political cover
because people are screaming about
inflation and that that is drowning out
Wall Street right because people
you know what no one really cares about
wall Street’s profits being down when
like everybody is paying five bucks a
gallon or six bucks a gallon for gas
right so the FED realizes that they’ve
got a chance now to under the guise or
under the you know the
the yeah I know the guys of breaking the
back of inflation yeah right they’ve got
the cover to go and like do something
dramatic with interest rates and cause
pain to like the people who would
otherwise you know have them by the
throat and and be able to prevent them
from from doing what what needs to be
done so that that’s what I think is
going on here but I don’t know how you
see it yeah it’s kind of similar but
different I think I think one of the
things that Powell wants to get rid of
is what Wall Street Calls the fed put
yeah
uh I I think you know he’s an
intellectual I believe he’s an attorney
by training I believe or a lawyer and I
think he looks at again using inflation
like you say as the cover
he wants he wants to kind of break the
connection that when Wall Street throws
a hissy fit the FED bails him out and I
actually I mean you know there was a
billionaire on CNBC yesterday Barry
I’m gonna mess up his last name Chardon
halt or something like that
yeah that guy that guy yeah basically uh
you know Capital Partners or whatever
he’s the he’s the CEO of and he’s out
there complaining you know the economy
is going to crumble and blah blah blah
blah and I’m like I don’t know who this
guy is let me look him up and sure
enough he’s a multi-family you know real
estate guy around the world I’m like
well no wonder you’re complaining the
fed’s coming after your business right
you may have variable rate debt you may
have bad assumptions you may be in
Warren Buffett speak swimming naked and
don’t have the right debt I’m not saying
he does I’m just saying maybe you’re
uncomfortable because you know the FED
is is you know taking away the punch
bowl and and you know maybe you have
there’s a lot of people that got
addicted to bad debt they got less
disciplined they did lots of
things that work in a low rate
environment that don’t work in a normal
let alone a high rate environment so
yeah so for me I think I think I think
Powell is trying to
uh get the FED back to volcker Worlds
not volcker rates but vocal world where
the Fed was independent it wasn’t
perceived as political uh influence
because again Volker stood up to Reagan
Reagan begged him uh to lower rates and
he didn’t uh my suspicion is uh if it
hasn’t happened already it’s about to
get really loud uh for people you know
beating on Powell and I don’t think he’s
gonna I think he’s I think Powell knows
that if he’s not already he’s soon to be
the most hated man in America
because of what he’s doing all right
unemployment’s going to go up pain is
coming stocks are going down pain is
coming uh you know all assets you know
are being popped and I think I think
he’s I think he’s got a pretty good
backbone again I could be wrong
um but yeah I think he’s trying to get
rid of the fed put if you were to ask me
what’s the main thing yeah I mean I
think that that makes a lot of sense and
if you look at sort of the the negative
effect of you know low interest rates
like we’ve talked about before us it’s
like you know
it’s like giving people like
amphetamines or something right I mean
it’s just it’s giving us it’s giving a
small set of people amphetamines and and
the rest of us pay for it yeah yeah and
and and it’s it has really caused
misallocation of capital exactly exactly
the money has gone into bad stuff so
it’s gone into stock BuyBacks it’s gone
into uh you know non-productive stupid
Investments you know uh and when you
have a risk-free return that you have to
beat right that’s four or five percent
like what you used to be able to get on
a t-bill it makes people think about
where they’re going to invest money it
makes people it forces people to make
better decisions when you’ve got
essentially free money then it doesn’t
really matter like we’ll just throw
money at everything and hope some of it
sticks right and then one a couple
things stick then they call themselves
Geniuses right but and you see you see
you know it leads to speculation and
everything it’s responsible for stuff
like you know cryptocurrency right I
mean crypto has a time and a place and
blockchain is a real thing and all sorts
of stuff but like Bitcoin at sixty
thousand dollars is all this crazy stuff
like it’s going to be a million dollars
like that it was driven entirely by the
fact that people could not get yield by
just buying a t-bill right they could
not and they couldn’t find assets to buy
Like Houses because they couldn’t afford
them all the traditional ways that
people would save money for the future
were taken away from them because low
interest rates essentially you know made
it easy you know for the people who
already had an easy time getting money
it just made it easier for them and it’s
basically screwed everybody else right
so uh and I think that you know maybe
I’m sort of reading too much into
Powell but like I agree with you I think
that there’s the idea that we need to
have
we’ve had too much misallocation of okay
too many bad Investments too many too
much good money following bad money and
that we have to get back there needs to
be some you know Baseline against which
you compare compare all Investments that
is higher than zero right yeah so if we
if we play this out right because
everybody and their brother is talking
about a Fed pivot now right they’re all
begging for because again there’s real
pain going out that people have had
misallocation people have interest you
know variable interest rate There’s real
pain going out there a lot of it’s kind
of bubbling below the surface I think
it’s coming out
um
so we obviously have two more fed
meetings I think we get a 75 uh November
1st or November 2nd I think we at least
we get a 50 which will take us I think
to four and a quarter
right we’re three yeah it’ll take us
four and a quarter four and a half we
might get 75.75
um Bostic fed president Bostic just
talked about hey let’s get to four and a
half by the end of the year and then
pause
uh again Wall Street as you know is Ford
looking that you know that’s two months
away you know that could that could get
Wall Street excited again because of
course what Wall Street is going to
guess is hey a pause then a cut I don’t
think a Cut’s coming
good investors they don’t need to know
they don’t need cheap money they just
need to know what the Horizon looks like
correct yes exactly so so and I think
it’s funny I was asked a question last
night on my coaching my monthly coaching
call uh about uh when do I think defend
is going to lower rates again and like
when when does uh you know and people
talking about oh you know that that it’s
18 months between no last fed rise and
the first
and it would it didn’t think about it
last night but it just it just made me
think right now that there’s like an
entire generation of investors that
basically doesn’t know how to invest
except with cheap money right yeah 15
years basically yeah and the thing is
like it doesn’t it actually doesn’t
matter what the interest rate is right
the interest rate is actually relevant
except if you Buy in a low interest rate
environment and need to sell in a high
interest rate environment that’s bad
right and the opposite is really great
if you’re able to pull off the opposite
but what is the best for everybody is a
stable interest rate environment over
the long term where you’re not gaining
interest rates all the time right I mean
you know there’s going to be some
fluctuation that’s normal but yeah at
the margin not not standard deviation
moves yeah but you’re not yeah you’re
not talking about these massive moves
that are essentially created by like too
much cheap money for too long a period
of time right and so but so many people
have have kind of internalized this idea
that the only way to make money in real
estate is with super cheap interest
rates and all and appreciation only
right you know that that they don’t they
don’t understand it like you can make
plenty of money in a you know in a
normal interest rate environment because
what’s going to happen prices will
adjust to reflect the reality right so
and you just have to if as long as you
do your underwriting correctly right and
don’t overpay for stuff right you’ll
you’ll do fine right but I think I agree
but we’re gonna it transitional period
right now and those are always painful
right and for people who who know
nothing but cheap you know if you’re 35
years old right you have never invested
in an environment other than a low
interest rate environment you don’t you
have no memory of like like treasury
bills being a normal part of your
Investment Portfolio because they were
stable you can count on them and they
were going to pay you five six percent
interest right
they only understand like the
speculative environment that’s you know
created by super low interest rates and
I for one would like to see that
environment and I know it’s going to be
painful but I would like to go back to
something you know resembling more of a
you know hard money and and more sound
money and yeah interest rates yeah yeah
and again I think I think I think Powell
you know would obviously never say that
out loud but I think that’s what he
means my pain is coming he understands
that over the last couple of years years
um not there’s been there’s been
misallocation of money for a long time
stock BuyBacks being a great example of
it uh but there’s been it got hyper in
the last two years and you know there’s
lots of little train wrecks there’s some
um
you know there’s a lot of car wrecks
there’s some train wrecks or some
there’s just some bad stuff that we have
to get through and again where that
happens there’s opportunity right if
you’re prepared if you’re educated uh
there’s gonna be some great deals uh
coming so I’m excited yeah and look I
mean you and I have talked before about
you know the problem with the FED in the
past has been they’ve tried at all costs
to avoid recessions right and recessions
are you know and part of the business
cycle we’ve made the analogy that like
you know it’s like the same as with
forestry right if you oh yeah if you let
the small wildfires burn right they burn
up they clear out the underbrush and
they they basically make the big
wildfires impossible right and the same
thing with recessions like if you have
the small business cycle recession it
cuts out some of the Dead weight right
it forces the the business the marginal
businesses to fail and release the
resources for better use elsewhere right
but what happens if you don’t have that
that that brush that undergrowth just
gets bigger and bigger and bigger and
then when you got a spark it a lightning
strike then you have a conflagration
right and so and and now we’re seeing
the conflagration we saw one in 2006
2007 2008 and then the FED went and just
repeated its mistake again right and
we’re seeing it again now because the
FED could not allow the business cycle
to function normally right so hopefully
you know what we’ll see now and you know
this maybe there’s a lot of things you
know that are kind of happening all at
once sort of like reassuring less less
dependency on China like all this stuff
is actually going to make life more
expensive for Americans however
like it might also make them better for
oh I think so I think I think yeah
reassure I mean all of this stuff uh
again I go back to the 70s I think we
could have a a you know five-year period
where inflation is above Trend hopefully
it’s not eight or nine percent uh
because again restoring manufacturing
it’s just it’s like Micron just dropped
100 billion in New York you know it’s
just all of this still going on which is
net positive long term right but will be
inflationary in this in the short term
and um yeah I hope I hope Powell gets
rid of the fed put uh I I really hate
that Wall Street uh has learned that
they could grab the fed by the throat
whine and cry like a little baby tantrum
and the FED will pivot
um I hope it I hope it doesn’t happen I
hope he has a backbone I hope I hope he
delivers so Jonathan this has been a lot
of fun where can people find you
yeah so I’ve already pushed my uh
checklist which you can go back to the
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time so he knows uh that his time here
every week is valuable thanks Jonathan
thanks so much