Jason Hartman brings on guest and friend George Gammon. George is a real estate investor, entrepreneur, investor, and TV producer. The two talk about what’s happening in the repo market and how that impacts the overall economy moving forward. They also address misconceptions about different aspects of investing and whether you should be happy or dismayed about certain aspects of the new Trump tax plan.

Investor 0:00
I’ve been investment for about two years. I have six investment properties. Why in Kansas City? Three Memphis and 22 rock? Oh, I started investing because I listened to Jason’s podcast. I said it makes sense to me. So I make a very quick decision. I think maybe one month I decided to attend the meeting masters event back to some six thing. And then yeah, I started to buy properties since then, before that, I’ve been trying to do some study on stocks, but doesn’t make sense to me. So I hold a lot of cash I didn’t deploy to the stock market. So finally, I get to the Tetons podcast, everything he said. makes sense to me and I have a lot of agreement with he his opinion. So I decided to kick came to the event in the Masters And then I decided to make the investment. I think the first thing is real you have a real good return. It’s not a scam. But if it’s true, be careful. What I recommend is joining a network like a chasis network and get some education and then start to buy the properties to wait to learn.

Announcer 1:23
Welcome to the creating wealth show with Jason Hartman. You’re about to learn a new slant on investing some exciting techniques and fresh new approaches to the world’s most historically proven asset class that will enable you to create more wealth and freedom than you ever thought possible. Jason is a genuine self made multi millionaire who’s actually been there and done it. He’s a successful investor, lender, developer and entrepreneur who’s owned properties in 11 states had hundreds of tenants and been involved in thousands of real estate transactions. This program will help you following Jason’s footsteps on the road to your financial independence day. You really can do it. And now here’s your host, Jason Hartman with the complete solution for real estate investors.

Jason Hartman 2:13
This is Episode 1344 1344. Thanks for joining us today. We will keep this intro very short. But what may get very long is your life. Yes, your life may get very long, because scientists once again are out talking about how aging or shall I say reversing the aging process is very close. So far, they’ve only accomplished this in mice, but they’ve actually accomplished it. That’s amazing. And now it has been taken a step further with a dog and This is what geneticists George Church says. And he says that in about 20 years, he thinks this will be possible in humans. The geneticists works with 100 or So scientists in a Harvard Medical School lab to make this happen. As CBS reports. Wow, it is an amazing time to be alive. And this does bring up some wide ranging issues. Opportunities, yes, opportunity to live longer. That is great. But what about society? What about the welfare state? What about entitlements? What about social security? What about medical care? Right? All of these things? What about changing the retirement age? I mean, where did this 65 year old thing come from? Well, it came from the days when people only lived to be six. nine years old, and now they’re living a lot longer, and not just a lot longer, but a lot healthier longer. So it is truly an amazing time to be alive. This is, I don’t know, it seems like we’re on the brink of this. Not too far away. But that will leave us with a whole nother challenge one that we are here to address on this show with this education, and also with our guest today. George gammon. What is that problem? What is that issue? It is too much life left at the end of the money. Now that won’t be any of you listening, because you’re doing something about it. We know we can’t depend on the government. We know we have to make our own financial security. And that’s what we’re here to help you with. Don’t be left with too much life. At the end of the money. Make sure that money make sure you have a financial plan. Am You are acting on it, you are buying properties, you are managing them well, so that you can retire securely and live a long time in your golden years. And maybe we shouldn’t even call them the golden years anymore. Maybe we should call them the Platinum mirrors. What do you think about that? I think I just coined a new phrase there, folks, the Platinum years. It’s no longer the golden years. It’s the Platinum years. Those are beyond the golden years. And they are years of health and vitality and long longevity. There you go. Okay. Hey, I want to give a shout out to our listener and client clay Slocum. Thank you for introducing me to our guest today. George gammon. He did a great interview with me and also, he’s a great educator has a fantastic YouTube channel and he had me on his YouTube Channel recently and I was honored today we will have him as our guest on the show. So without further ado, let’s talk to George. It’s my pleasure to welcome George gammon to the show. This guest was sourced in a ton of unusual way. One of our clients, Clay Slocum, big shout out to you play introduced me to George’s YouTube channel, and I started watching it and became enthralled. He does a great job explaining economic issues on his fantastic YouTube channel. He is an entrepreneur turned real estate investor. He’s been investing full time he retired at the ripe old age of 38. He became a self made millionaire for years earlier 34 he’s traveled to over 40 countries. He now manages his own investment portfolio which consists mostly of real estate in and outside the US. So he’s been investing in one of our markets and then some stuff abroad. And he comes to us today from meta gene Columbia, where he produced a home remodeling TV show there, George. I’m kind of wondering, aren’t you really retired? Anyway, welcome.

George Gammon 7:15
Yeah, that’s a great question. Yeah. I work 80 hours a week and you retire your retirement. Yeah.

Jason Hartman 7:20
That’s the way it goes with a lot of people nowadays. Well, hey, you do a great job explaining some economic issues. And I know you’ve been listening to my show, since How long? When did you start listening to my show? 2012 2012. Fantastic. So you’ve been listening for seven years now? That’s great, or really eight years, almost. You got inspired to invest in real estate and then you you know, much later just recently started the YouTube channel. Give us a little bit of that background, if you would,

George Gammon 7:46
yeah, I retired in 2012. I started investing in real estate. Your show is just a huge, huge help. I went kind of all in Kansas City turned out to be the right time. And as an entrepreneur, I made quite a bit of money overseas. So when I learned the real estate game in the United States, I said, well, let’s take it overseas and see if I can make a little bit better return over there. And I enjoy traveling. So that took me down into South America in 2015. I started investing heavily in many in Colombia, in rental properties, but also flips because I had a really good team setup. And I’ve been here ever since doing flips and media and keeping some in a rental portfolio. And then I also still have a lot of properties in my portfolio in the United States in Kansas City. At the beginning of this year, we were doing a lot of these remodels. And I thought to myself, wow, you know, we’re doing all this stuff, and it’s just like you see on TV, so why not do a TV show? And I pitched the local station here, which is called telematic. And we did it. They said, yeah, if you produce it, we’ll put it on air. Let’s make it happen. So I produced the TV show myself, I’d never done that. I had no clue what I was doing. But I hired some good people. We got it done. It’s a lot of fun. And then after I got done with the first season of the show, I had some great editors, great camera people. And I thought, well, man, maybe I’ll just do a YouTube channel. So I did the YouTube channel started off talking a little bit about real estate. The first videos were just absolutely horrible, as you can imagine, and they got a little bit better. But what I really like talking about is macro. That’s, I’m just addicted to it. In other words,

Jason Hartman 9:21
economics, right? Correct. And that, that, I must say, is my favorite too. You know, I think the big picture is the most important picture. And so many investors focus on these micro little things and they watch the market hourly and, you know, they’re crazy. That’s not investing. That’s like gambling. It’s just people are into the dope amine hit. It’s a strange mentality. I’ve never really understood it, but Well, I guess I do understand it, but I’ve never been into it. I’ll put it that way. So So yeah, macro economics is really a fascinating, very well said. It really is and I love monetary and fiscal policy. honest, you know, obviously you do too from watching your stuff, you know, but I must say, this is not great first date conversation.

Jason Hartman 10:12
But I love it anyway, it’s really interesting to me. So good stuff. Well, let’s talk a little bit about macro economics. You know, one of the things we’re hearing a lot about nowadays, George, is this phrase, you know, there are these various phrases that are kind of in vogue at times, and, and then they fall out of favor. And, you know, you hear these acronyms, you heard these names? Well, the one we’re hearing all about today that we really haven’t talked much about on the show at all. Is the repo market, the repo market? Yeah. So you’ve done some great stuff on this. Explain to the listeners, what is the repo market and why does it matter?

George Gammon 10:50
Well, the repo market is an area where financial institutions can get cash that they need for whatever maybe it’s meeting their reserves. requirements or something like that. So generally, the prime dealers will buy treasuries, and they’ll take those treasuries, and they’ll sell them, they’ll have the liquidity. They’ll inject that into the repo market for these lending institutions. And it’s basically a loan, but a lot of people look at it like a pawn shop, because technically, they meaning the person who is giving the cash, they are taking collateral for that cash. They’re literally actually purchasing it through called a repurchase agreement. And the repurchase agreement states that at a specific time, whether the next day, or it can be a term repo, let’s just say 14 days, that the person who took that or the entity that took that money, they’re going to buy their collateral back, and then that money is going to go back to the original lender, if you want to look at them that way. It’s just kind of the plumbing of the financial system.

Jason Hartman 11:52
Right now. People are talking a lot about the repo market nowadays. That seems to be a really popular phrase. Has there always been a repo market? Or is something new happening? And that’s why everybody’s talking about it.

George Gammon 12:07
Yeah, so Dave, well, I’m not sure how far back the repo market dates, but it goes back a long time what what really triggered this whole conversation was in the middle of September, the repo market rate should be very close to the Fed funds rate. And the rate just overnight spiked up to almost 10% 10% when it should be down below or right around 2%. That is completely unheard of. And what that means is that there’s a not enough cash. And so the demand for that cash went through the roof or people just aren’t willing to lend. And that’s what spike the demand. So the Fed had to come in and immediately inject billions of dollars into the repo market to bring the price or the interest rate on that. money or the demand all the way down to where it should be to meet up with the Fed funds rate. And then of course, how comes out? He says, Well, this is just a quote unquote, temporary glitch in your team. When you say pal, you’re talking about Jerome Powell, the Federal Reserve Chair. Go ahead. That’s correct. Yeah. So he comes out says, Well, this is just a temporary glitch, there’s nothing to worry about, just you know, move along. Now, we’re two or three months later, and they’ve injected more and more money into the market. Now they’re injecting almost 300 billion a night when you take the overnight repos and the term repo. And this has gone from a temporary glitch to now all of a sudden, they’ve committed to do it well into 2020.

Jason Hartman 13:41
So is this a sign that there is something ominous on the horizon? I mean, when markets like this are really out of sync, first of all, only the sort of aware people that are in the financial industry know about this, the common person doesn’t know anything about the repo market. They probably haven’t even heard the phrase What does this mean to us?

George Gammon 14:00
What this means is that there’s more demand for cash than there is supply, or the people that have the cash aren’t willing to lend that cash for the specific collateral offered. And that collateral is typically treasuries or more mortgage backed securities. So if you look at kind of how this whole thing works, and you just say, well, this makes sense. This doesn’t make sense. And all the things that I’m hearing from the media is that well, it’s tax time of year, it’s there’s just low liquidity because the federal government is running all these deficits. So that means that there’s a higher supply of bonds and a lower supply of cash. But the reason that doesn’t make sense is because that wouldn’t make a market spike overnight. That would be maybe something that would happen over the course of months. But since this happened overnight, you’ve got to say yourself, well Okay, well, what else can cause this? And what’s going around the internet? And what I think is probably likely it’s it’s not definite, nothing certain. But what might be happening is there’s a bank, a huge bank that is insolvent, and the Fed is coming into the repo market and injecting money. So that bank is insolvent is taking that money without going public that, hey, this bank is insolvent. Why would they want to keep that under wraps? Because the bank could be potentially systemic, such as Deutsche Bank, or HSBC, or Santander or these are banks that really if you look at their balance sheet, they’re in big, big trouble right now. And you know, don’t you were to go bust. I mean, that would have a huge ripple effect. That would not only create big problems in Europe, but in the United States and around the world. So that is a potential scenario. And that’s why most people are getting really excited about it or getting very interested. Right

Jason Hartman 16:02
right now very interesting. Yeah, we’re very, I should say disconcerting, frankly. Yeah, really, really interesting. Okay. So what do we do about that? We just have to kind of wait and see, right? At least if we know what’s going on behind the scenes. We know what it might lead to. But there’s nothing. anybody you know, who’s not an insider, at the elite level of the financial system, like at the Fed? Nothing anybody can really do, right.

George Gammon 16:31
Yeah, they actually can I get this question from a lot of my viewers. And they’ll say, Well, what about my money market account as an example? And the money market funds are big players in the repo? Yeah. And

Jason Hartman 16:44
by the way, this is interesting, because a lot of people and I guess there are a couple different kinds of money market accounts, but a lot of people mistakenly believe that money market accounts are FDIC insured, and I believe there is one type of them that is, but It’s not the one that most people are depositing money into. I don’t know the names anymore. I have heard the names I just can’t remember. But money market money can be just completely lost with no insurance. It’s not like a bank account. So be careful.

George Gammon 17:13
Yeah, absolutely. And that FDIC doesn’t have near enough money to cover the deposit.

Jason Hartman 17:18
Well, we assume that the whole system’s not going to collapse at the same time. Haha.

George Gammon 17:25
We Oh, I just I just

Jason Hartman 17:28
said to my listeners, that I just watched that ominous clip from that great movie margin call, just watched it yesterday. And it reminded me of when I saw the movie originally, all listeners must see the movie margin call. It’s great. Anyway, Yeah, go ahead.

George Gammon 17:43
So what I’m telling viewers is that Listen, if you have a money market account, they’re getting an additional interest rate by potentially taking that money and putting it to work in the repo market. And so if you think it through there’s a possibility that That this money market account or fund could be taking your money and giving it to Deutsche Bank. So that would be the question that I would have for that individual. Would you feel comfortable giving Deutsche Bank or Santander or HSBC? Your money right now? And your money that’s supposed to be quote unquote safe? And most people’s answers would be definitively, no, no chance. And so that that’s how it applies to a lot more people

Jason Hartman 18:30
than you think. Very interesting and concerning. Okay, George, what else would you like people to know? What else would you like to talk about? You know, we were talking about how mortgages You know, when you when you look at inflation, and you look at the cost of everything out there in your life, you made an interesting statement that I like, and I’m probably going to repeat you’re going to hear this again, from me, listeners. It came from George, though, that mortgages are really the best deals in the country right now. Now, and you know, I’ve said that in kind of a different way over the years, but I like the way you said it. What do you think about that?

George Gammon 19:05
Yeah, so my investment philosophy is you got to buy things when they’re cheap. And someone they’re expensive. You buy things that pay you to own them. And you’ve got to have some diversification. And when I look at the United States, right now, the only thing that I would categorize as quote unquote, cheap is a 30 year fixed rate mortgage. So then the question becomes, well, how do I express that bet? And so people said, well, should I just go out? And does that mean, I should buy a condo in Los Angeles? No, no, no, no, absolutely not. Because you’re expressing that bet in a way that’s got tremendous downside. But if you go into a market, like a lot of the markets that you deal with, you know, these linear markets, where the price to income ratio is a lot more sane, that limits your downside. And if you can go in there and by potentially under the cost of construction, that limit your downside even further, and then you’ve got a lot more Cash Flow because the RV ratios are so superior in a market like little rock compared to Seattle or San Francisco. So by taking what the only thing in the United States that’s cheap, which is a 30 year, fixed rate mortgage and expressing that bet through a rental property in just a normal 1200 square foot, three bed, two bath in a good neighborhood, let’s say in Little Rock, Arkansas, that’s the best possible investment that you can make in the United States right now, in my opinion, and guess what, if you want to get access to the mortgage, which is really a huge part of the investment,

Jason Hartman 20:38
you have to buy a house in order to get access to the mortgage, right? If I could just get the mortgage. I might just do that. Without the house. The house is sort of a ticket to getting the mortgage. It’s kind of like those infomercials you see, you know, well, if you buy the Ginsu knife, you get this bonus, well, you know, it’s okay the Ginsu knife is the house. But the bonus is the mortgage, which is just a fantastic financial tool. I really is amazing how, how good a tool that is.

George Gammon 21:09
So a lot of my viewers are really into precious metals. And they’re very apprehensive about the long term viability of the dollar. Not that it won’t be the reserve currency or, you know, some people think it will and it won’t, but they’re concerned about the long term purchasing power of the dollar. Let’s just put it that way. So if you’re one of those people, there is no better way to short the dollar, then with 30 year fixed rate debt on an asset that pays you to own it. And most people see a mortgage as a liability. I don’t I see it as an asset as long as you utilize it in the proper way.

Jason Hartman 21:50
Yeah, fantastic. Well, I you know, I couldn’t agree more. You won’t get any disagreement from me on that. Tell us about the mortgage market. I’m curious in Colombia. What kind of mortgages Can you get there?

George Gammon 22:00
You’re not going to be able to get a mortgage here. The best thing you can do is get 12% hard money.

Jason Hartman 22:04
Oh, my so it’s bad.

George Gammon 22:06
Yeah. Yeah. If you want to use leverage to your advantage, then you gotta look at the United States.

Jason Hartman 22:13
Yeah. Okay. Yeah, absolutely. US has very, very special properties. It really does. Let’s talk about the new tax law. George, one of the things that you noticed was really quite interesting about part of that bill. And, you know, this is the problem with our government. It’s the concept of pork barrel legislation, right? The President does not have a line item veto. And Ronald Reagan was really hammering on that never got it, he would really be great because would hold the president accountable. Because now it’s always this big compromise. You know, you gotta support this, you got to do that. And every one of these bills is, you know, usually hundreds of pages long and it’s, it’s just mind boggling. It really is, if not thousands of pages long. But in the new Tax Law, which I like I think, and maybe you’re going to talk me out of it right now. There is a provision about the way they count inflation. Tell us more.

George Gammon 23:11
Yeah, I’m going to talk you out of it right now. Jason. Okay, here we go.

Jason Hartman 23:13
Hey, listen, before you talk me out of it. I’m just gonna say it least, at least this last tax return I filed. I mean, I saved a bundle of money, a bundle of money. Now, I agree that there’s definitely some inflation in the system. No question about that. But it wasn’t as much as I saved. So yeah, tell us more.

George Gammon 23:34
To your point. Short term, it is good long term is when I think it’s going to cause a lot of people a lot of problems. The reason for that is because in the fine print for this bill, what they did is they started to measure CPI in a different way for the tax brackets. So as a lot of us know, inflation is probably running higher right now, then the government would lead on to with the CPI. But what they’ve done is they’ve taken a step further. So without getting super technical here, let’s just say that before they were using the CPI to move the tax brackets up, so

Jason Hartman 24:18
And of course, that’s the Consumer Price Index, which is the primary measurement for inflation. Okay, so the CPI is obviously, you know, misstated in many ways, but tell us more,

George Gammon 24:31
they use the CPI to move the tax brackets because let’s just say that you’re making $10,000 a year, or let’s say $50,000 a year and inflation, let’s say it goes up to the point where your salary doubles, it goes up to $100,000 a year, well, your purchasing power stays the same. But if they left the tax brackets where they were, your tax rate would go up substantially. So they’ve Got to move those rates up with the rate of inflation. But here’s the deal. If they measure CPI in a way that understates inflation, that means that those tax brackets are going to stay where they are today, a lot longer than they should. So you can see how this works long term because of this compounding effect, that we have this inflation, let’s say they’re telling us that it’s 2%. But in reality, it’s 5%. Well, now what they’re doing is they’re saying, Okay, well before, we would have measured it at 2%, the CPI But now what we’re going to do, and this is in the in the fine print, we’re only going to measure it at 1%. And so what happens over 10 1520 years, is people go up and up and up and up and up as far as their income as a result of inflation not that their purchasing power increases, but their incomes might increase with inflation. Taking them into tax brackets where they otherwise wouldn’t be. So their purchasing power doesn’t increase, but the percentage of tax that they pay on their income does increase. So their overall purchasing power decreases substantially.

Jason Hartman 26:17
You know, it’s really interesting and this can work both ways. And Dan Ammerman, who’s been on the show many times and he’s got some real deep, wonky thinking about a lot of this stuff. He explains it pretty well, and I just can’t remember how he explains it. But he shows a few examples of how the IRS doesn’t account for inflation. And sometimes that benefits us as investors and sometimes it hurts us it mostly benefits investors and, and hurts non investors. It’s just really quite interesting how they don’t account for inflation properly. And it could be good or bad. It just depends,

George Gammon 26:57
right? Because see what they do now. They switch To the CPI to what they call a cost of living index, as opposed to a cost of a basket of goods and services. So the way they used to do is they just take a basket of goods and services, you know, you got a car, you got health care, you got food, or you know, piece of steak or you know, it gets really granular. And then they just measure that every single year and they see the increase, and that would be your, your CPI. Now, they don’t do that. Now what they do is they take that basket of goods, but then they say, well, we could substitute other things if the price went up, and your standard of living would still be the same. So as an example, let’s say in the initial basket, they had a flaming neon, a nice cut of steak. And then let’s say in the new way that they measure it, that that Philemon Yon went from $10 up to $12

Jason Hartman 27:56
they’ll say you’ll have elation or hamburger? Yeah,

George Gammon 28:00
yeah, what they would do is they’d say exactly. They’d say, well, you don’t necessarily need a fillet, you could go ahead and have this T bone or this hamburger. And that’s still $10. So inflation didn’t really go up.

Jason Hartman 28:14
Yep. What a scam. So that’s called substitution. And the two other major ways they understate inflation is waiting, and hedonic indexing. So it’s substitution, the one that George correctly pointed out, waiting, and then hypnotics. We’ve discussed those things many times on the show over the years, and that’s absolutely true. So they do that. But it’s interesting to see that this was part of the tax bill, and nobody but you has mentioned that George, you’re the only one

George Gammon 28:46
if you’re saying yourself as a listener, oh, this can’t be right. There’s no way don’t take my word on. It’s on the New York Feds website. And it’s a little hard to find but go on your computer and just spend a half are on Google, you can find it. And I hate to be a conspiracy theorist. But if I just got a lot,

Jason Hartman 29:07
a lot of those conspiracies are true. Okay, so you know, don’t don’t knock it.

George Gammon 29:12
They’re not all faults. Well, when I was reading this, the first thing that popped into my mind is I thought, you know what, I’ll bet you power is doing this on purpose as a way to get back at Trump for all those tweets. Because of you, you know, Trump’s obviously really hard on power. Yeah. And if your power what do you do know you got pride, you want to punch the guy in the face? Yeah, you can’t do anything about it, because you got to keep your composure. So what better way, you know, the tax law, the new tax proposal, that was Trump’s Baby, you know, he throws that out there. It’s his claim to fame. Well, what better way to smash that than to disclose on your website that Hey guys, this might be neat on the surface. It’s actually bogus if you look at the fine print. So I’m not saying that he did that. But I think

George Gammon 30:08
that’s, that’s a great way to do it.

Jason Hartman 30:10
Yeah. Yeah, sure is no question about it. Very, very interesting. Very interesting. George, this is, this is fascinating stuff. give out your website. And we’ll have you back on the show to discuss this, you know, more and more stuff in the future. You know, just keep up the good work. keep studying this keep educating people about it. Where do you want people to find you?

George Gammon 30:29
They can go to my YouTube channel. It’s just George gammon, George tickle spelling, gammon, GA, m m, o n, or if they want to look me up or text me directly, you can find me at Twitter. And again, it’s just my name. George gammon.

Jason Hartman 30:43
Fantastic. George, thanks for joining us. Thank you so much for listening. Please be sure to subscribe so that you don’t miss any episodes. Be sure to check out the show’s specific website and our general website heart and Mediacom for appropriate disclaimers and Terms of Service. Remember that guest opinions are their own. And if you require specific legal or tax advice, or advice and any other specialized area, please consult an appropriate professional. And we also very much appreciate you reviewing the show. Please go to iTunes or Stitcher Radio or whatever platform you’re using and write a review for the show we would very much appreciate that. And be sure to make it official and subscribe so you do not miss any episodes. We look forward to seeing you on the next episode.