WARNING: EASY MONEY IS OVER. The Party is Over and The Cops (The Fed) Have Been Called. You READY?

Video Closed Captioning:

good morning good afternoon good evening

folks michael super one written out of

time back with the man myth the legend

mr jonathan twomley how you doing sir

i’m dumas michael how are you oh man

i’ve been looking forward to this

conversation

oh i’m sorry go ahead no go ahead oh i

shouldn’t have interrupted because now

you’re in the middle of like introducing

this segment but i i didn’t mention it

before but i just have to say i i’m like

admiring the professorial

editorial demeanor there

you’re turning back in

your blazer and your beard and

everything ah thank you quite

distinguished

i’m trying you know i uh you know i’m

trying to help people and if this is

what it takes to get more people to

stick and listen

it’s fine i got the jackets in the

closet so might as well use it man i

gotta up my game michael

you look bad so but anyway i’m starting

to interrupt you that’s okay production

to this segment

yeah that’s all right so what i we’re

going to talk about here is probably one

of the most important topics that people

need to realize folks you can argue you

could be upset you could do whatever you

want but in reality

we have lived in an easy money policy

for

more than a decade

it got a little tight in 2018 q4

it is that is going to turn out to be

nothing

right in the scheme of things that was

not tight

but but if your world’s the last 10

years that was as tight as it got yeah

folks

the party’s over they’ve now taken away

the punch bowl nobody’s spiking anymore

all the drugs are gone if you are

running around the party now hammer

watch out because the party’s over

there’s no more musical chairs it the

easy money game is over and if you’re

not ready it’s going to hurt

what do you think

i i agree i mean

we’re

you know

as we said in the last segment

the you know bank of america and others

are predicting that the fed is going to

raise rates quite substantially over the

next couple of years this is something

that they have said over the last 10

years was their intention right this is

not like a secret this is not like some

kind of

like

radical change in direction on the

course of the fed they have been trying

to do this

ever since

basically about 2012 2013 right so yeah

right about yeah

and they have been stymied

at every

occasion by either

the economy getting a little softer as

happened you know sort of 2016-ish

by the market

freaking out

in 2018 when they tried to do it

but i think that they’re looking around

right now they’re seeing

the inflation you know

uh

boogeyman that has that people have been

predicting since 2000 since the bailout

of 2008

right

we’ve been hearing about inflation

resulting from all this since 2008 and

it hasn’t happened it now is finally

starting to happen

right

and

uh

that

a

sort of forces the bed’s hand

and b kind of gives them some cover to

do what they

needed to do right or what they said all

along that they wanted to do

so

uh

we are going to see interest rate hikes

i mean

they’ve already said they’re going to do

it

uh and different banks out there really

think so how far this is gonna go but

it’s it’s happening right so it’s

happening absolutely it’s happening and

if bank of america you know they’ve

predicted 11 rate hikes over the next

two years

taking the fed funds rate to 2.75

right

that is now some of you will go oh my

god 2.75

this is still low by historical

standards normal normal fed funds rate

is

three to four percent right so this is

still

low

yeah of historical standards however for

people who have only known

low interest rates extremely low

interest rates practically zero interest

rates for basically their entire

investing lives this sounds like

disaster and frankly it’s going to be

painful

it is going to cause asset prices

to

decline and you know

even if you

believe as i do that asset prices are

overinflated everything is overvalued

you know

saying things are going to return to

something more like their true value

well that’s fine in the academic sense

to say this is better except it’s not

better for all the people who bought at

the top right so yeah a lot of pain if

you have debt resetting in the next oh

man 24 months

oof

watch out yeah i mean it is

it is going to affect everything it is

going to affect

the stock market so your stock

portfolios right it is going to affect

the price of real estate

if it doesn’t cause an outright decline

in real estate at least going to stop

price appreciation deadness drops oh

yeah trent transactions will fall for at

least on the res so what happened i

think on the residential transactions

will fall again i go back to the 70s it

feels like i repeat myself almost every

episode 1970s real estate residential

did not decline the smallest increase

year to year was point nine percent so

call it one

transactions

fell in a half

that’s where the pain is well you also

got to ask yourself is this

is this 1980 or is this 2007. right yeah

because

1980 was not a debt crisis

2007 was a debt crisis and 2022 is going

to be a debt crisis that’s great

right so i mean it isn’t you know

because it’s the same cost you know to

the the recession in 1980 inflation in

those days was you know caused by all

sorts of factors like you know the

hangover from the vietnam war all the

you know

society programs all of the government

spending it was more like fiscally

driven it wasn’t monetarily driven it

wasn’t because of cheap money and and

cheap debt it wasn’t done fueled it was

fiscally fueled and also you know energy

prices and all kinds of other stuff that

happen

at the same time right

what happened since then though

is

you know basically the the monetarists

got control of stuff

they got control of the fed

and they went

you know

to town especially once uh greenspan got

oh yeah greenspan right

and you know he was the hero but he’s

the guy who got us started on

this whole problem right so

uh

you know we’ve lived in this very very

low interest rate environment for

for quite some time and um just like

2007 i mean 2007 the bubble was debt

fueled and then when the fed

cut off the spigot it caused a crash and

uh that’s kind of where we are again

nothing has changed since then they just

kicked the can down the road

after the great financial crisis so yeah

you know i’m hoping that this is not

going to be the pay the piper moment i’m

sure the fed is hoping to do this in a

way that doesn’t

create a crash but they have to get back

to normal yeah they can’t have

a balance sheet you know the fed

since 2010 has how many multiple i mean

all the money that fed created in the

previous hundred years how many of these

and several multiples of that yeah yeah

well they’re their balance sheets nine

trillion just over nine that’s not good

they know that they have to unwind this

and and i think now

like i said before inflation

gives them

cover

to do it and the economy is you know

it’s roaring right now right so

i just saw you know

unemployment in miami is one percent

yeah

that’s amazing i mean just just

astonishing right so

uh

with the economy that hot

uh it it gives them

i think they pull the chance but it’s

gonna you know to raise rates but

raising rates is going to cause

asset prices to decline yeah

there’s so much in this conversation

again i go back to paul is jerome powell

going to be a mini paul voker so let’s

first talk about what that means

paul volcker whipped inflation because

he took the fed funds rate

above inflation yeah several like i

think at one point it was 500 basis

points above inflation

it basically rewarded you to save yeah

so guess what people stopped borrowing

money duh

i remember my mom being so excited about

being able to like she would make like

13 in a pack in his account like crazy

and i was like this is the greatest

thing ever put money in the bag and make

this much interesting so the reason i

bring that up is because again we talk

about 2.75 like it’s

like this it’s like so high

at 2.75 even conservatively speaking

it’s still half

of inflation

yeah so

i would argue that 2.75 maybe slows the

economy down a little bit maybe adjust

this or that but if you want to whip

inflation

that’s not going to do it in my opinion

well but i guess it’s sort of it goes

back to what we were just talking about

though like what’s the positive right

and the cause of

if the cause of the inflation is easy

money

then taking away the punch ball maybe is

going to have a big effect like i think

i think the problem with 70s that’s

different

is that inflation was so

persistent

because of what opec was doing and

because of all the other things that we

were talking about it just you know

it just made it so difficult to to make

a dent in which is why volcker had to go

so radical i think you know

here

it may be it may be different because

what the problem is

is pumping all the money into the system

and then you start sucking the money

back out

it may have it may have a

a greater you know effect you may not

have to go maybe

to get to get things to start you know

yeah but it’s it i i certainly see that

i also do agree there’s some some supply

chain elements of this i i you know

there’s so many maybe not but

i don’t think 2.75

is enough is i guess my point and the

other thing i’m willing to say is if

what i see coming this is gonna be years

in the making the pain is not going to

be it’s not gonna be a v-shaped recovery

it’s not gonna be q1 of 2020 with the

sharp down and then bounce back that was

a v-shaped asset because it’s going to

be a long drawn-out painful death by a

thousand cuts feeling

that is and that is what

happens in a debt crisis right in a debt

in a debt-created

recession

and this is what what happens is it just

takes a long time for everybody to pay

off that debt

like that yeah so money is getting

what’s happening is money

is getting rather than being constantly

able to roll over the debt at ever

cheaper interest rates

the piper has to finally get paid and

now corporations have to pay back that

money right

with more expensive debt and

that is gonna that sucks money out of

what they can purchase

who they can hire and it takes a long

time to work through the system the

problem with what happened in

you know the great financial crisis was

that process was not allowed to play out

right the fed stepped in to save another

great depression that was the right

thing to do but once that once that had

happened

then what needed to happen was for

the

debt to get paid off to all that bad

debt to work its way through the system

be worked out

take the hit and then re-establish the

economy on a better footing but instead

what happened was the fed just said hey

here’s some more money yeah

and uh and here you know go borrow some

more

so

that i mean gosh it’s kind of scary to

think about

what could happen but we you’re right i

mean if we could be in for

a an extended period of

low growth again

and

and then then what’s going to happen the

fed is going to try to pop up another

bubble i mean i don’t think they’re

going to have the

intestinal fortitude to say

no we have to take our medicine

and

you know

work

this out

i think the best case scenario is we

have a couple years of what’s called

stagflation

i don’t know what you think of that yeah

i don’t i don’t know i

i don’t know if there’ll be a stagnation

now that i think slow growth is

certainly

uh in the cards right

so

yeah in reality the easy money game is

over i think there’s a lot of people

that have been investing for five six

seven years that uh aren’t ready for it

maybe they’re they’re maybe they’re

still risk on

right so maybe you have some time to

kind of adjust that but uh

folks again recessions are part of the

business cycle

recessions are like clearing the

underbrush we have a lot of underbrush

to take care of

you can make a lot of money i’m excited

uh for what’s coming uh but again as in

episode two i prepared for what’s coming

so um yeah it’s gonna be exciting either

way to see what’s happened so jonathan

how can people find you

uh yeah a number of ways you can uh get

on my investor list by going to uh two

bridges asset management llc just pop it

into google uh and fill out the form and

get on the list you can go to the

multi-family investment community and

join my facebook community with 11 12

000 of my closest friends

michael yeah absolutely and you can get

on my email list by going to multiplying

launchpad dot org and downloading the

free download you’ll find there which

i’m going to make a surprise this time

if you want to find out what the free

download is you got to go to multifamily

launchpad.org yes download it and you’ll

get on my general email list awesome

jonathan thank you very much for your

time this week great conversation

youtube michael see you in a week you

got it

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