Wealth Formula by Buck Joffrey

My key takeaway from our guest (Ryan Bourne from the Cato Institute) on this week’s episode is that policy mistakes that adversely impact the free markets happen for a variety of reasons:Misread of dataPoor use of policy toolsPolitical motivationNational Security interests Whatever the reason, the consequences of policy mistakes are real for investors.  For example, the FED let inflation run too hot when it thought it was transitory, which probably then created a situation where they had to hike more aggressively than they would have if they caught inflation at the front end.  Resulting in a detrimental hit to interest rate-sensitive investments such as real estate and debt securities.   Today, we can see examples of potential fiscal and monetary mistakes unfolding in front of us: On the monetary policy front: the FED is waiting for data it needs to start cutting rates…but, it’s running into the presidential elections timeframe (RNC convention in July, DNC in August).  So, it may decide to not touch the FED rate until end of year…Thus the FED may be forced to make a policy error due to political considerations. On the fiscal policy front: we see large investments to support US manufacturing; large investments to onshore critical technologies such as semiconductors; trade protectionism including tariffs on imports (new tariffs announced today on Chinese EVs, storage batteries, steel and aluminium products); immigration policy is also at risk of politically motivated policy decisions.  As investors, what can we do? It’s not possible to predict and factor in the impact of all of these policies. What we can do is isolate key macro themes that are likely to drive secular trends over the coming decades. For example:The Aging population in the US and other developed countries.  This will drive growth in health and wellness products and services.  Investment in upgrading the US grid to support huge demand of electricity (data centers, AI driving computing, EVs) and to accommodate new energy sources. Deployment of AI in key industries such as biotech to accelerate drug discovery. Historically high level of cash ($6 trillion) is sitting on the sidelines as investors decide to clip 5% interest in money market funds. As soon as any signal comes from the FED that it is ready to cut rates, or even if it is going to significantly taper its Quantitative Tightening policy, there will be an enormous amount of capital rushing back into investments: equities, bonds, real estate etc. Investors should already start deploying their capital into investments. Do not sit on cash and/or money market funds.  At 5% money markets may be tempting, but that rate will not last when the FED starts cutting and then you’ll be chasing assets that have already appreciated dramatically.

I have frequently described myself as most aligned with libertarian thought when it comes to my own politics. In terms of the economy, libertarians believe in the concept of a free market. Libertarians argue that a truly free market fosters prosperity, innovation, and individual liberty. But that doesn’t really describe the American economy, does it? Over the years, the American economy has seen a proliferation of regulations at the federal, state, and local levels that have significantly constrained economic freedom. In addition, governments constantly intervene in the economy through corporate subsidies, bailouts, and preferential treatment. You don’t need to look further than the recent regional bank bailouts to see that.  Libertarians would argue that such intervention distorts market incentives and motivations. For example, how are banking practices going to change for the better if the bankers know they are going to get bailed out if things go wrong? Does a truly free market even exist? I don’t know of one. And perhaps the ruthless nature of the free market is one that we wouldn’t truly find appetizing anyway. However, there is no doubt in my mind that a “freer” market would do the economy some good. My guest on this week’s Wealth Formula Podcast is from the libertarian think tank, Cato Institute, and explains how government market intervention has hurt us and how it will continue to do so if policies do not change. Show Notes: 04:29 What is the Cato Institute? 05:32 The Market Prices Are Under Siege 08:00 How Do Market Prices Provide Value For the Economy? 11:45 Inflation VS Price Spikes 16:52 Is the Central Bank Policy Misguided? 19:11 Are We Hitting the Inflation Target Soon? 25:13 What Could We Be Missing That Would Keep Inflation Numbers High? 28:13 How Will the Election Affect Decision in Policy?

US debt fears overblown but appetite of investors to buy US debt questioned. Foreign investment decline, central banks buying gold. Position portfolios with real assets, leverage, tax-efficient investments. Current market trends: Latest FED outlook, interest rate trends.

Is it me or is no one talking about high U.S. debt levels anymore? Conventional wisdom has always been that high debt levels lead to inflation and the destruction of currencies, and money printing conjured up images of wheelbarrows full of worthless bills and economies in freefall. Then one day, the political party that used to care about fiscal responsibility stopped caring and now no one talks about it anymore. After all, doing so would involve cutting things like Medicare and Social Security—not popular political stances. Instead, the concept of Modern Monetary Theory (MMT) has started to creep into popular parlance and, you could argue, is becoming the rule of the land.  According to MMT, as long as Uncle Sam holds the keys to the printing press, he can rack up debt without any ramifications. It’s a bold new take on economics that’s got the traditionalists scratching their heads and the contrarians doing a victory dance. So should we care about debt or not? My guest today on Wealth Formula Podcast is definitely a traditionalist and he is not optimistic about how the story will end if we don’t do something about it. Make sure to tune in as he explains why debt is still so important and what, if anything, we can do about it and protect ourselves. Show Notes: 05:37 Why is the U.S. Government a Big Ponzi Scheme? 06:52 Is the U.S. Immune to Bankruptcy?  08:04 How Realistic Is It That the U.S. Economy Would Collapse? 12:01 Political Reform for the Fiscal Policy 19:20 How Can We Protect Ourselves From the Collapse?

I have been asked by many to give my opinion on where the economy is headed and what to do. I have been reluctant to do so because I am not an economist and I do not want to give investment advice. However, I do think I owe it to you to let you know where my head is and what I am doing based on these thoughts. Last week and this week’s podcast have convinced me that rates are going to fall significantly over the next 6 months. Why? Because I think that inflation, as measured by CPI is going to fall off of a cliff. I don’t even consider this a prediction frankly. I think it’s already written in stone. Why? Because 70 percent of CPI is based on rent increases and the variables used to calculate this number are 6 months behind. The recent CPI of 3.1 per cent used 6 per cent rent increases to get to that number. Anyone in the multifamily space will tell you what’s wrong. The rents are flat. We see it every day and all of the data available to us real estate operators show flat rent growth. Knowing this, all you need to do is ask yourself what this lagging indicator will show six months from now. Whatever happens between now and then doesn’t matter. That lagging indicator will reflect what is the reality today. And if the rents are where I believe they truly are, CPI will be below two. A CPI below two along with a slowing economy will result in a swift response from the Federal Reserve to cut rates to avoid deflation..traditionally the Fed’s worst fear. So, if I’m right, rates will come down and anyone making big decisions today based on the assumption that rates will remain stable or go higher is making a mistake. In other words, my opinion is to make sure you are not selling from a position of weakness. Hold on to what you own. This week’s interview with Richard Duncan furthered my convictions of the inevitability of falling rates. It also painted a picture of China that looked a lot more like Japan in the 1990s. The economy and the world are changing quickly. Make sure to listen to this week’s episode of the Wealth Formula Podcast to keep up! Show Notes: 06:38 What’s Been Going On With Inflation and Rates Cut? 11:21 Indicators That the Fed Uses to Measure Inflation 15:27 Will the Fed Become Hawkish now? 21:33 Why the U.S. Economy Has Been So Strong 28:31 The Economic Crisis in China 42:41 What Can China Do to Stabilize Their Economy? 48:17 Implications for the Rest of the World

Even really smart people are wrong on a regular basis. I see this all the time in health and longevity-related issues on my other podcast, Sapio with Buck Joffrey. In case you are wondering…yes, I have become one of those middle-aged California guys trying to stay young at all costs. Not easy. But, I have to admit, the nerdy physician scientist type in me is having lots of fun with the science and enjoying the process of sharing it with my fellow Gen-Xers who are also fighting gravity with me. But getting back to the point of smart people being wrong—we see this a lot in medicine. In the 1960s, a lot smart people created the food pyramid that said we should be eating a lot of carbohydrates and very little fat. That’s quite the opposite of what recent science suggests. There was also a period in the 1990s when women were advised not to use hormone replacement because a study was thought to have suggested a link with breast cancer. A generation of doctors gave women bad advice based on what turned out to be a misinterpretation of data. On the economic side, we don’t have to go far back to see the Federal Reserve calling inflation “transitory” just before it skyrocketed for real. How could so many smart people be so wrong? And now, the Fed is likely delaying interest rate cuts because of higher-than-expected inflation numbers. Are they missing something here? My guest on this week’s Wealth Formula Podcast thinks so and his reasons are compelling. I have to say, this was one of the most interesting conversations I’ve had in a long time on the Wealth Formula Podcast and I HIGHLY recommend you listen to it. Show Notes: 07:28 How Does the Inverted Yield Curve Predict Recession? 18:53 Stirring the Economy by Misreading the Data

The notion of moving wealth away from Wall Street into the hands of small private operators sounds great. However, it’s important to acknowledge some of the challenges of navigating these waters; challenges that many have witnessed first-hand in the podcast ecosystem over the past two years. First and foremost, let’s talk about vetting. Investing is hard. With the ideal operator and business plan, you still have economic cycles, inflation and interest rates to worry about. And sometimes, projects just fail. These are investment realities that are always there even before you choose an operator. Of course, not all operators are created equal and the vetting process becomes paramount. How do you ensure that these operators have the acumen, integrity, and diligence to manage your wealth responsibly? You can do background checks, look at resumes and track records. You can ask all the right questions and even get all the right answers. All of this is certainly helpful, but limited to historical data. As the old saying goes, past performance does not indicate future results. So far, all of this applies equally to Wall Street and Main Street. But I would argue that the one variable that is much harder to control on Main Street is the bad actor. You would be correct in pointing out that the most famous of modern-day Ponzi schemes was perpetrated by Bernie Madoff, Wall Street’s Godfather. But that just doesn’t happen that often with the big boys. Too much red tape, regulation and heavy-hitting due diligence by sophisticated investors to make an outright fraudulent investment work. And the bad actors know that too so they set their sites on easier targets like retail investors. They lurk at our events and make the podcast circuit. It is for these various reasons that I no longer will interview anyone from outside of my own circle actively raising capital. It’s also the reason that we now use an SEC-registered broker-dealer to conduct independent due diligence on most of our offerings in Investor Club. How do you identify a bad actor anyway? Sometimes it’s quite easy. For example, one fund that was circulating in the podcast ecosystem had a founder and CEO who I couldn’t even locate on a Google search despite the fact that he was sold as a major player in the oil and gas industry doing business with some of the world’s top companies.  Sometimes it’s less obvious and you have to know how to look for clues. My guest this week on Wealth Formula Podcast is an expert in identifying fraud, in part, because he once ran a Ponzi scheme himself. Show Notes: 08:45 From Fraudster to Fraud Prevention 17:10 Do Frauds Generally Start with Intention? 19:36 5 Major Red Flags of Fraud 37:40 James’ Business

As soon as I finished training, I opened up a cosmetic surgery business. When I say business, I mean a business not practice. From day one, it was my intention to create a brand that I could hand off or sell someday rather than to create a job for myself. I was also focused on cosmetics. Unlike the traditional way of growing a cosmetic practice, I wasn’t going to see insurance-based patients for 10 years and slowly build a referral base. Nope. I hit the airwaves and pounded the internet any true entrepreneurial business would do to make itself known. It worked and though I didn’t make much money that first few months, within a year I was pulling in six figures per month. It was my first entrepreneurial success. And while I rode that wave I felt invincible. It lasted for two years— right before the 2012 presidential election. At that time, I had just decided to buy a building for my business. That was shortly after buying a $2 million house which was a big deal for me just a couple of years out of training. In short, I was suddenly cash-poor. However, things had been going great so I wasn’t worried about the short-term cash crunch. I assumed I would make it back in short order. But something happened the October before that election. People stopped buying cosmetic surgery. It was weird—one day they just stopped. I learned later that this phenomenon often occurs in the luxury sector right before elections. People don’t like to make big decisions when they feel like there is uncertainty of any kind in the air. Whatever it was, it was killing me. Suddenly I had all these bills and mortgages and for a moment there, I was scared that I was going to lose it all. Luckily the election came and went and things normalized but I promised myself that I would never let that happen to me again. From that day forward, I would never rely on a single source of income.  And since that time… I have not. In fact, I don’t feel comfortable unless I have at least three solid sources of income. I think of my income sources like a three-legged stool. If there is a problem with one of them, I feel very unstable. I may sound paranoid, But, the funny thing is that I don’t think most people realize how tenuous their financial circumstance is. If you have a job and you lose it, would you be ok? I don’t care if you are a doctor or a small business person. No one source of income is bulletproof. So you have to have a plan B. If you listen to this podcast, you might already have this kind of mindset and you might already be looking for opportunities. And I have to say that this week’s episode of Wealth Formula Podcast really got my wheels turning. If you have any extra space in your house or an empty lot somewhere, you could be sitting on a goldmine.  Find out how you might be able to turn some useless space into some serious cash by listening to my interview with the co-founder and CEO of neighbor.com Show Notes: 11:18 How to Make Money with Your Empty Space 15:51 How They Mitigate the Risks and Liabilities 22.43 Limitations and Law Restrictions 26:01 How Far Has neighbor.com Gone? 27:54 Have Multifamily Investors Tap Into This Space?

The cost of real estate transactions affects everyone regardless of whether you invest in real estate or not. Why? Because the cost of the transaction will ultimately be included in the price of the real estate. One of the biggest costs in a real estate transaction is the commission paid by the seller. In the last several years, the way that commissions have worked at the residential level is that the seller’s broker collects the commissions and shares them with the buyer’s broker. However, that paradigm is about to change as part of a massive settlement between home sellers and the National Association of Realtors (NAR). The issue at hand: sellers don’t think they should be paying for brokers who are not working for them. The courts have agreed and in order to avoid massive ongoing litigation the NAR has decided to change the way it does business. These changes will affect real estate investors and homeowners alike. Tune in to this week’s Wealth Formula Podcast to get all of the juicy details on how! Show Notes: 04:17 The Conspiracy 07:14 The Lawsuits 10:49 The Changes 19:31 The Implications on Real Estate Prices 23:35 The Result? 24:36 The Opportunities 29:16 Will there be less realtors?

In the long run, math is pretty much always right. That’s why insurance companies are so profitable. They make predictions using the law of big numbers. Math can predict pretty much anything. Even Sports! I just re-watched the movie Moneyball about how the Oakland A’s made an improbable run in major league baseball in 2002 by leaning less on star players and heavily on analytics generated by a nerdy Yale economics major. The genius of applying mathematical principles isn’t confined to the boardroom or the baseball field; it seeps into our everyday lives in ways we might not initially recognize. Beyond the high-stakes world of sports and finance, mathematics offers tools that can help us navigate daily decisions and challenges, often without us even realizing we’re employing them. Math doesn’t just predict outcomes; it helps us make more informed decisions, maximize our resources, and enhance our daily lives. Math isn’t just about numbers and equations; it’s a vital tool that, when applied, can solve practical problems and make everyday tasks easier and more efficient. And of course, math can and should be used in your investment choices. This week’s guest on the Wealth Formula Podcast explains how to do this and more. Show Notes: 06:04 Are people bad at predicting the future?09:10 Can technology help us predict the future better?11:46 Why is it so hard to predict the future?14:16 How do Psychics know about your life?16:42 Base rule21:02 When should you avoid using math?22:39 Math for medicine