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
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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