Jason begins the show with a look aparment inventory and construction in 2018 across the US. He compares them to the 1980s and what it means to be overbuilt and how it impacts the single family rental market. Later on the show he brings on Dr David Collum, Professor at Cornell University. They look back at 2018 and look forward into what 2019 brings. The two discuss skewed CPI numbers and how stock buybacks are affecting the economy.

Investor 0:00
life was when the real estate I just didn’t want to deal with tenants and all the phone calls so I just never got into into what the market really went down in 2008 that’s when I started listening to radio and I heard you on radio. And that’s what I decide to do it because I, your method works with where I have to deal with tenants and issues that come up even though I do deal with it was not the same.

Jason Hartman 0:23
Welcome to meet the masters of income property investing. I’m your host Jason Hartman. The 2019 meet the masters of income property March 23, and 24th in Newport Beach, California.

Jason Hartman 0:41
What is the sort of the one trick, the hack the secret that really empowers people to success, income property, the most historically proven asset class in the entire world. Register today at Jason hartman.com forward slash Mr. Early Bird pricing ends Friday, February 1. Let’s break this down and look at some of the strengths of income property. As an asset class, I found that this event is really helpful because I am totally a newbie to real estate investment and so I picked up so much information. One of the great things about it is that it’s so fragmented right? embrace the fragmentation Jason hartman.com forward slash masters.

Announcer 1:28
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 follow in 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 2:18
Welcome to Episode 1128 1128. This is your host, Jason Hartman, thank you so much for joining me today. As we have a another year in review type of show, looking at last year, our guest today publishes every year. He is a he’s a professor and he publishes this very comprehensive here in review. I can’t remember how many pages it is, but it’s a lot. It’s a lot. It’s a big year in review, where he looks at the financial markets and all sorts of stuff in the economy. And I think you’ll find it interesting that he does say the number of pages during this interview as I recall, you know, it’s over 100 so It’s a very comprehensive report. And we’ll kind of dive into that today. But first, wow, real estate development last year in the apartment world is nothing short of astonishing. It is astonishing. I tell you. Do you know how many apartment units were built last year? Yes, this is according to a CB r e report. That’s the big commercial real estate firm in the top 20 markets. Okay. The total number of apartments constructed last year coming online was are you sitting down? Are you ready for this? It’s a giant number. And it is the highest number since the 1980s. They didn’t say what year in the 80s. Interestingly, but since the 80s. The report says that 267,900 units completed last year, that is absolutely mind boggling. It is amazing. Now the question is, where were most of these apartment units built? And what does it mean to us as real estate investors? Well, it means that the big institutional investors with more cash than brains many times but you know, a lot of brains to remember. And when I say that, I’m not actually saying they’re dumb, they’re not dumb, okay? These people that do this stuff, have lots of brains and lots of analysts and lots of financial engineers. But what I mean by that is they are motivated by an interesting set of factors, right. And so this interesting set of factors includes things like the availability of funding of money they can raise, which doesn’t necessarily correlate at all with the demand in the marketplace. So what does that mean? Well, it means when they have you know, cheap capital, low interest rates, abundant investment capital, from You know, their various sources mostly related to Wall Street, the modern version of organized crime. They overbuild sometimes. Right. And I don’t know if they’ve overbuilt yet. I think temporarily, they probably have overbuilt, but we shall see. So what does this mean to us since we are really single family home investors for the most part? Well, it means that we offer something special that is difficult for the institutional investors to offer. Now, certainly many of them do. We know about invitation homes and all the other biggies that we’ve talked about on the show over the years. But again, in terms of the overall marketplace, in comparison to the overall marketplace. They are a drop in the bucket, even though they sound like big numbers, right? You know, when one company owns 50,000 single family homes, that sounds big, but it’s really not very big compared to the 16 million plus single family homes owned by mom and pop investors. That’s you know, that’s a drop in the bucket. Right. But when we look at all these, you know, most people want a single family home, they don’t want to live in an apartment. And interestingly, as I have shopped apartments in many markets around the country, you know, and of course, I’ve shopped many single family home markets, obviously, that’s my my core business. But I always look at the apartments too, and look at the competition they offer. And what’s interesting about them is that the institutional apartment owners are so much better at getting people to spend more money than we are, as you know, Mom and Pop investors, right? We are not very good at it. They have lots of add ons and charge for this and that, you know, pet rent, we’ve talked about that parking, it’s mind boggling, and it’s really a sign of inflation. You know, overall, maybe they do rent surveys, right? These big surveying companies that survey institutional apartments, and they’ll say, Well, you know, this is what the rental rates are but that isn’t really the real rental rate. It’s the same way inflation is understated and miscalculated, because there are all these add ons. Okay, so the average what’s known as the average customer ticket, okay? Well, that’s what I call it. That’s what they call it in retail. Okay. And I’ll call it that in real estate too, is higher than it seems. So rents are really rising more than the surveys would indicate. Okay. Because of all these add ons for for I mean, you know, you go and look at an apartment in any major city. I mean, I remember I was looking at an apartment complex in St. Petersburg, Florida a couple of months ago, okay. You know, it was here’s the base rate, okay, it’s 20 $700 a month for the unit. Right? Well, what about parking? Well, parking is another $80 a month. And oh, so that’s an assigned space. No, that just means you get to come in the garage and look for a parking spot. If you want in a science. Space that’ll be 150 per month. Oh, you have an animal? Well, your pet rent will be $30 a month per pet. Okay? And soon they’ll be saying, Well, hey, do you want fries with that? That’ll be extra, right? You know, do you want electricity piped into your unit? Oh, that’ll be extra. Oh, you mean for the electricity? No, just to have it there. You still have to pay for the electrical just like you do now. And so they sub meter at all of these units, you know, nothing’s included. You know, it’s just another sign of inflation. Okay. So check this out. Here’s the breakdown for you. Okay. Now, the problem with this article is that it’s misleading. Why is it misleading? Because they never asked the famous Jason Hartman question compared to what compared to what is the question? So these numbers I’m about to share with you should be compared to the overall number of housing units in that market, the population in that market and the number Number of rental apartments in that market already right but they don’t tell you this. They don’t tell you this. So you’ve got to take everything with a grain of salt. But here are the numbers not compared to what sadly which would be the proper way to state these numbers. New York City had an additional 32,000 I’m gonna round off for speed 32,000 units built Dallas Fort Worth another 21,000 units. Los Angeles, my hometown. 20,000 units Seattle 14,000 units. Washington DC 14,000 units Denver 12,000 units, Boston 10,000 units. Miami, South Florida 10,000 units, San Francisco Bay Area 9300 units, Chicago 9000 units Orlando 8000 units, Austin 7000 units Charlotte 7000 units Atlanta 7000 units San Antonio 7000 units Phoenix 6000 units Minneapolis 6000 units Tampa 6000 units Nashville 6000 units and Portland 5000 units. So folks, a lot of new apartment buildings, a lot of new apartment units coming on the market. But of course they never say compared to what? Because if you did New York City, for example, and just took the overall population, I mean, it’s obviously massive. So 32,000 units added to the supply isn’t really that much, okay. In the overall scheme of things, but it’s still a lot since you know, it’s the highest point since the 80s. Okay, Valentine’s Day is coming up. Happy Valentine’s Day. I hope it’s very romantical for you, I thought I’d share with you a little interesting survey. You know, we’re always hearing you know, women are oppressed, and you know, men are evil and all this kind of stuff. I’m just getting really kind of sick of hearing that. Because, hey, it’s just not true. Most men are really good people and they take care of business and they do good things and they take care of their families, and all that kind of stuff. So I just thought this was interesting. As you know, you always hear about the pay gap. And all this kind of stuff right? Valentine’s Day. This is a recent survey I heard on the news, and it says that the average woman will spend $64 on Valentine’s Day for her partner, and the average man will spend $339 Now, why isn’t there a government program to help these guys out who are outspending their female counterparts by 530%?

Jason Hartman 11:30
Seriously, you know, a 530% increase in spending, what will they spend the money on? Well, 19% flowers 23% chocolate 18% jewelry 9% clothes 23% dinner and food 7% lingerie 9% bleep adult toys and 9% experiential gift okay of some sort like an activity right? So anyway, I thought that was kind of interest Last thing for today before we get to our guests, another interesting thing you know, this trend is something I reported on quite a few years ago. But it is the thing that is happening. And one of the biggest markets for this, by the way is my old hometown, Orange County, California. The Orange Coast right, the OC, more married homeowners are seeking roommates to cut costs more than 280,000 married American households. Now live with a roommate now, compared to what? I don’t know. Okay. Because I don’t know how many married households there are right and is that homeowner married or renter married says that homeowners are seeking this but it doesn’t say the 280,000. So anyway, whatever. Right. But the interesting thing here, right is okay, so new data from Trulia reveals that in 2018 Nearly 4.2 million US households lived with a roommate or a border of these households, more than 280,000 belonged to married couples. Right. So, I mean, isn’t it amazing that, you know, we live in an era where a married couple has to take on a roommate to be able to afford their home? And that’s just quite really kind of mind boggling. If you think about it, you know, here you’re you’re a married couple, and you got like this single person living with you. Yeah. I don’t know. It’s just sort of an odd. It’s kind of an odd scenario. And the top housing markets for this with the highest rate of married couples living with a roommate was Honolulu where we just worked for our profits in paradise event A couple of months ago, by the way, meet the Masters is coming up. Do you have your tickets yet? Jason Hartman comm slash masters Get your tickets. It’s going to be a great event. And by the way, we do have Saturday Evening musical entertainment. Remember we had our journey tribute band last year? Well, we’re going to announce something real soon. I’m just dotting the i’s and crossing the T’s on our musical entertainment for Saturday evening. Okay, and Orange County, California, right, also the highest along with Honolulu. So, interesting study there. interesting study more there it says. Furthermore, on average, every hundred thousand dollar increase in the median Metro home value equates to a quarter percent increase in the share of married couples with roommates. Okay, this is an interesting trend. We will see how it develops. Okay, without further ado, let’s get to our guest. Oh, hey, there’s one more thing I got to tell you. We are running a Valentine’s Day promotion. You know, years ago, we used to do this thing called frugal Fridays, right where we would offer a special on one of our educational products or maybe an event just for one Hey. So we are going to do it on Valentine’s Day today. And we are going to have the audio from a prior meet the Masters event on sale for half price just on Thursday, only on Valentine’s Day. So take advantage of that. You can do that at Jason Hartman calm. Okay, without further ado, let’s get to our guest and talk about his report of the last year and let’s take a urine review.

Jason Hartman 15:38
It’s my pleasure to welcome back a returning guest and that is Dr. David column. He is a better Dr. Miller, Professor of Chemistry and Chemical Biology at Cornell University. But we are going to talk about the geopolitical environment a little bit but especially economics, and happy to have him back David, welcome. How are you? Hey, it’s great to be back again. This was great last time, it’s good to have you. So as we review last year a little bit, let’s let’s just kind of remind people, you know, we forget so quickly, what happened then, as they say those who do not learn from history are doomed to repeat it. Right? Right. Well take us through last year, if you would,

Dr David Collum 16:18
actually one of my premises is and I actually wrote about this in the introduction of my annual survey is that a lot of stuff goes by us and it’s lost forever, right? And our brains don’t capture that well. And so one of my motivations is to actually catch these things on the fly and see if I can come up with a narrative that makes sense at the end of the year. So each year has a certain personality to it. And then I write about topics that catch my eye in particular, I would say this year was less political. About 5050. This year was more two thirds economic in part because the political part was so intractable. I couldn’t make sense of it.

Jason Hartman 16:53
Yeah, yeah. For anyone to say this year was less political. That’s sort of an amazing statement, but I was

Dr David Collum 16:58
able to grasp Yeah, that’s Yeah,

Jason Hartman 17:00
the question is always compared to what? Right compared to what

Dr David Collum 17:03
I heard a lot, right. Economically speaking again, I moved through a lot of subjects, but I spent an inordinate amount of time focusing on on market valuations. And and it’s not that I haven’t talked about them before. I’ve talked about them every year for 10 years now, actually, they seem successive to me. And I guess right about the time I started to write, you could feel the sort of the vibrations in the market. So I said, Okay, this year, I better lay it out, obsessively. Sort of the logic that then I can say, I told you so. Right. Right. Right. And when you’re talking about the stock market valuations Of course,

Jason Hartman 17:37
but also bond market, yeah, okay. Oh, good. Good. I’m glad you mentioned the bond market, but with stocks even given the the recent volatility and then the slide down a bit, they’re still overvalued, aren’t they?

Dr David Collum 17:50
by a huge margin. Yes. And I saw this morning Howard Marks came out and said, You know, I’m buying aggressively now and the and so we went, we want to run From the oh nine bottom that was two or 300% off the lows, the GDP grew at 2.1% a year. So the GDP grew maybe 30% total, and the equity markets went up tenfold that that just doesn’t make any sense whatsoever. And so for a 16% drop in markets are 18% drop to be the big correction and time to get back to business. I, there’s a delusion behind that. It’s not enough, it’s not enough. So dive into that a little more about it. unpack that, if you will, about the GDP versus overall valuation relationship. Well, in theory, equities value, the GDP, right? The GDP, everything is everything. In fact, there’s those who say that it’s way way more than it should be. So for example, if you mow your lawn, they throw that into the GDP. It’s a ridiculous calculation,

Jason Hartman 18:50
right? Every haircut I mean, you know, it seems as though that should be more about production than services and, you know, maybe more about exports, but of course, that’s track separate So yeah, well

Dr David Collum 19:00
it’s also think I’ll the NDP, which which no one uses anymore. And it’s called net domestic product. And it’s it supposedly is GDP net depreciation. And so that’s closer to reality because a lot of things are rotting. Right? Right. So NDP is what you’re actually making this real progress. But the GDP roughly speaking, you know, the s&p 500 should in some proportionality reflect the price the GDP of the country because it’s a the 500 biggest businesses in the countries. So it is a famous Buffett indicator, this is where, where he says that you should value your equities based on the GDP, and they’re near all time highs, they were a little higher in 2000. They were lower in 2019 29. They were lower in 67, which was also an awful time to start investing. So it’s the second highest it’s ever been other metrics take it to all time highs, so there’s some said put us in nosebleed levels

Jason Hartman 19:56
within the P just to go back to that for a moment with anything pee. In other words, that doesn’t count replacing old things that have worn out, right? That doesn’t count that into the GDP figure.

Dr David Collum 20:09
So for example, if you own a house, crudely speaking to keep your house from falling into its foundation, this sounds appalling to people, but you have to put about 4% of the value of the house and every year to keep it just treading water. So in a GDP measurement that the repairs in your house would be considered progress would be considered production act is just replacing the garbage that’s falling into the foundation and so theory that doesn’t count and so NDP catches real growth, real progress, right in terms of making new things Okay, got it. But GDP is just like the CPI numbers and just like the unemployment numbers, Uncle Sam is always trying to make things look better than they are right to keep the population at bay and, and make us feel happy, right, happier than we should be. Right? Right, yeah, they certainly are, in part because they have tied to it the CPI and the CPI and getting cooked. And the toll that started in the 60s. So LBJ supposedly used to get financial numbers and thrown back in someone’s face and say make them better, right. And over time, they got more and more massaged more and more cooked. And so

Jason Hartman 21:18
and they got seriously cooked in terms of the CPI in the late 70s. There was that other Fed Chair, I don’t know if it was before, after paul volcker, that one that served a very short term, like a year or so I can’t remember his name now. But I heard an interview with him or I think Tom keen on the economy was doing that interview on Bloomberg. It was pretty fascinating about how in the late 70s, they really learned how to cook the books on the CPI, and really mislead us. And in terms of what real inflation numbers are.

Dr David Collum 21:47
There’s this thing called the Baskin commission, right? And the Boston commission got put together to say, you know, are we really getting the CPI? Right? So you hire a bunch of PhD economists, you’ll get a pretty goofy model at the end. They decided That we were missing improvements. So they decided that to the extent that you have intermittent windshield wipers on your car, the price of your car is really overstating and flight. That’s all. The hedonic indexing, right as the hedonic indexing. They also, by the way, came up with goofy ideas like if the price of state goes up, then you’ll switch to poor substitution as a substitute. But what they don’t do is they don’t account for the fact that you’ve just stepped down in quality. So they should basically take the price of pork being cheaper and therefore you’ll use more but they should do a hedonic adjustment and the price,

Jason Hartman 22:34
right waiting substitution, hedonic sort of the three primary ways they mislead us in terms of inflation indexing, but donek indexing at its core is a logical thing. I mean, I can understand that but you know what it says, David, it says that we as people are not entitled to progress. The inflation index is entitled to progress, not us. Imagine if we had tonically Next, from the day the light bulb was invented or the wheel everything would be free

Dr David Collum 23:08
to give them that. But here’s the real problem. So again, I didn’t write about this this year, you have to go back years to find this stuff. But they’ll for example, take a blender my favorite examples of Blender I was broke, it was a 4050 year old blender and I broke it and went bought a new one. Now that Blender lasted 50 years, the new one has more buttons, has more speeds has more everything I think they had dynamically adjusted to say therefore it’s a better blender, and it’ll last about three years. That’s

Jason Hartman 23:37
that’s interesting, because the quality isn’t as good and everything’s in this kind of disposable society. Right.

Dr David Collum 23:41
Right. And so the per year cost is a rental the per year cost just went up tenfold. Yeah.

Jason Hartman 23:49
So you know, look at most everybody listening will agree because we’ve talked about it a lot that the numbers are obviously skewed You know, there’s a everybody’s got an agenda. Go back to the urine review. We’re

Dr David Collum 24:00
so they started talking about valuation 20 plus metrics evaluation, they all put us at round number two x overvalued. And that’s to x overvalued relative to historical means for the US price to GDP or price to revenues, price to sales, Tobin’s q price to G. There’s all sorts of these metrics, there’s tons, there’s composite, they all put us to x over value, which means the market to correct to the norm has to drop by 50%. It goes through them in which we all know what the main means it has to spend half the time below the mean. So it’s got to go through the meeting or redefine it, then you’re even more than that. And that’s where husband comes in, says, I think we’re going to go to 60 or 70% down before this is over. And then the question is, is are the valuations people are using based on earnings and stuff correct when you realize that if the market corrects 50% of what’s going to happen to earnings, if we just slice and wages start going up, what’s going to happen to the world record product margins, the companies we’re experiencing right now they’re the highest profit margins ever, and that is on the backs of stagnant wages. If we get real wages going up, then the companies are going to lose their profit margins, then they’re going to have a company, the companies will just pass that through to the consumers if they can, right. But then the GDP becomes a farce and the last day correct for it, right? What happens is the consumer has lessons over holding spirals. So the Justice right now we’re in a meta stable situation, in my opinion, where we’ve got a situation here where we have to sustain the unsustainable for the markets to stay at the current levels. And just I spent 15 pages banging on that concept, stock buybacks in a big way, because there’s a subtlety to them that I realized, actually the stock buybacks are a ruse ruse in a way that people don’t, I can’t find a new mode of writing about it. So So we know that they’re using them to pump the shares, we know that they’re using them to boost Executive bonuses right to hit their targets to get their hundred million a year, whatever it is right? We also know that they’re buying it peaks that’s not contested at the last minute, and it’s actually not in there. Well, I did an analysis on a fictional billion dollar company and the conclusion that I drew from arithmetic, this is not projections. This is nothing, that if you do share buybacks with cash on your balance sheet, you buy back shares and you extinguish them, you gain precisely zero to the penny to the penny, there’s no gain. And it turns out that if you look at the net tangible assets on the balance sheet and in the value of the company and the shareholders, they own exactly the same that tangible assets at the end of the buyback work. It’s surreal if the company chases the price up at all, whether they’re causing it to go up or whether they are just tracking it up. Then while the price is going up, and shareholders are getting Cheering the per share net tangible assets supporting those shares is going down the net classes per shares going down. People all think they’re going up the sale, less shares or more fantastic. That turns out to be a arithmetically row

Jason Hartman 27:16
using sixth grade math, their seating their own tip jar. It’s a house of cards. That’s just an illusion, right?

Dr David Collum 27:22
Well, they’re swapping something on their balance sheet for something out. Yeah, right. Right. And if they taste the shares up, they’re swapping it for something that’s getting more expensive. And so actually sums up the company’s value that x they’re now paying more than X,

Jason Hartman 27:35
but it can be worth it to them, obviously, to play that game. David, I want to make sure we talk a little bit about real estate we’ve seen a real change, especially toward the end of last year. I’ve been predicting for years that the high end, what I call cyclical markets on the two coasts and and in South Florida, are highly overvalued same with markets like that around the world, highly overvalued. way past the point of fundamentals. And finally, the slowdown really is happening. The New York market is just crashing, like crazy. We’re seeing this the lower end markets, those sort of bread and butter, what I call linear markets are holding up very nicely. And in fact, inventory is still very scarce and prices are still rising in those markets. And of course, you know, you can’t talk about real estate without making it local, but from a national perspective. Any thoughts on real estate?

Dr David Collum 28:28
Yeah, several one is that after the 809 bust, we had this odd situation where obviously people were liquidating their homes like crazy they we overbuilt the houses of people then got foreclosures and the houses went on the market we had a glut with strategic defaults left and right millions of them I mean, I and so then what happens is following that you find that homeownership rate is dropping and the prices are rising and anyone who knows free markets will say how can that possibly be right the supply demand curve is broken at that point, turn The buyers I think are private equity. These big big companies that are buying up single family dwelling

Jason Hartman 29:06
oh yeah and like never before America is really becoming a renter nation. You know, you see these we’ve never had this happen before where these institutional investors have owned thousands upon thousands of single family homes. This is a first in history what’s happened over the past 910 years

Dr David Collum 29:25
and the reason we never have and this is what’s critical is that it’s a lousy business so if you want to if you want to it’s a very fragmented business and I don’t think they don’t have the tolerance for it factions are razor thin if at all if they even exist and so so if you want a house lots of people you make a rectangular building and you make rectangular units and you pack them in tight like like starting like an apartment. That’s how you make money right like apartments like condos, you name it, single family house, You’re awful businesses. So what what made them possible well, ultra low interest rates, gave them a razor thin margin to make money and then they levered up. And now in a rising rate environment and I think we’re going to reach some threshold whereas the rates rise, there’s lower profit in it. Now, here’s what auto habit

Jason Hartman 30:14
But wait, you know, if they have the advantage that the traditional investor gets, which is pretty awesome, a three decade long fixed rate mortgage at an artificially low interest rate, arguably a negative interest rate below the rate of real inflation or or a bad par with it. They’re pretty good. Now, I don’t know enough about their financing at an institutional level. They don’t get those Fannie Mae loans. They’re probably much shorter than that

Dr David Collum 30:42
right. Now. That’s an excellent point. So then the question is, what are the odds of private equity guys threw it out 30 years? Yeah, I doubt it. I think they did some real short term ultra cheap stuff to do. That’s exactly like and so now you’re gonna have a liquidity problem because he’s got rolling over loans and they won’t be able to get them at the rates they need them. So what are they going to do? They’re going to liquidate real estate are going to see the Oh 809 glut finally show up as the rates rise will be some some threshold and then you got places like Palo Alto the median house is three millions if that’s beyond the absurdity

Jason Hartman 31:22
of Canada now crashing right, Canada is now Vancouver was the poster child for Nicholas appreciate, I mean, just beyond ridiculous, you know, two and a half million dollar tear down shacks in Vancouver. I mean, you can’t make this stuff up. And some of them are not turned out. I posted a picture on the soul for 2.6 million I think it was it was just a pile of sticks. It was unbelievable. And he got Australia apparently he’s giving out now I heard London’s giving out now. And so I think we’re starting to see a cascading failure because I think the banks around the world are all trying to title. You know, I think it relates to your stock market discussion earlier, you know, when we see these areas, these tech saturated areas, namely Silicon Valley, but of course there are many others around the world. Everybody wants to be the new Silicon Valley, right? You know, when we see these stocks finally get in line with real legitimate value, and other normal economic pressures and the share buybacks waning and so forth. I think those housing markets and those ultra high end tech oriented areas are really going to suffer. I mean, they’ve got to

Dr David Collum 32:33
my understanding is people are leaving Illinois for the first time ever, people are leaving San Francisco for the first time ever, that there’s

Jason Hartman 32:40
people been leaving California for quite a while rightfully so to you know,

Dr David Collum 32:45
and so I think they will equilibrate. I think we will regress to some mean, maybe it’s going to be more expensive than you know, I think in New York, but I think they’ll price correctly. I think it was Genentech. They said the only people can afford a house are the founders is like it’s just actually Crazy.

Jason Hartman 33:00
It is. Any thoughts about what’s to come? desktop your crystal ball there?

Dr David Collum 33:05
Yeah, I think we started the downturn. I fought this several times, but it’s been a monotonic March upward since oh nine one that I, you know, in all the other bubbles. I think we’re in a massive bubble all the other bubbles we ever had there was a great storyline. So whether it’s 29 and we just invented all sorts of appliances and, and cars and planes, or whether it was even the the tech bubble where there was this new era of digital connectedness and, and they always had a great story and the current story is central banks are back. So it’s a fanatic story. Yeah, it’s a monstrous bubble. I think it’s gonna unwind if it doesn’t know why now online later, but I think it’s

Jason Hartman 33:46
going to unwind with though is it going to be the stock market? It’s not going to be real estate this time. I mean, there’s no subprime crisis and I mean, unless we just can’t see it. The banks have been very conservative

Dr David Collum 33:57
housing having some serious leverage in it now, right? So So here’s what how it’s going to take place in the worst case scenario. And the guy here you might want to have on this guy named Chris Cole from Artemis capital, he wrote about the Vics collapse, which is kind of arcane for a lot of people, but it’s an entire market. That’s the volatility index. But

Jason Hartman 34:16
why? Why do you think just unpack that a minute.

Dr David Collum 34:19
So the mix collapse was where people were betting on an arcane measure called volatility. It’s much more than it sounds. Yeah. And he had written about it and talked about it about five days before it collapsed. Now people say what do you mean it collapse? Well, this is a multi billion dollar market that literally went from existing to not existing in 15 minutes, this collapse like a house of cards, and in 15 minutes, they were vaporizing, liquidating entire investment vehicles by more people lost a fortune right? I mean, they were gone. He says that was not it. He says that was not the big one. Those were the what he calls the explicit volatility baths and on top of that, volatility bets like company share buybacks where you’re betting the markets not going to punish you risk parity bond funds where you’re betting that the bond markets aren’t going to kill you. So the Black Swan that people somehow don’t believe can happen, I think is when the bond market and the stock market collapse together. Now, last time, and oh, no nine while your stocks made you suffer your bond saved your bacon. So if you’re 6040, you didn’t get crushed as much as you remember. Why does the Why does the bond market

Jason Hartman 35:31
collapse? Is it because rates are so much higher at that time that you know there’s just a yield issue? Or is it? Is it a default issue?

Dr David Collum 35:41
Well, the market is so average that you can all sudden that Italy, for example, about a month ago, their interest rates went from point four to 2.8. In about two days. I can’t even explain that except to say it’s a meta stable system. You say why did the avalanche fall Why did the earthquake occur when you have this much leverage? You have this much energy sort of cramped into the system. When it’s time to go when it’s time to collapse when it’s time to correct like a bomb like an explosion like a volcano. You can’t model it there’s no it’s not rational it just goes. So I think that the some point the bond market just loses control it just all of a sudden it goes bitless you’re going to have central banks bidding it up but what have cornered by an inflation problem. So what if also the inflation really starts to take hold and the salaries rise as commodities rises, tariffs kick in, and all of a sudden the central bank’s go Wait a minute, we can’t save the markets, while at the same time without losing control of inflation. So as soon as they’re bit interest rates sore and things start breaking, there’s Kentucky for example, state of Kentucky their pension fund is funded to the tune of about 22%. So

Jason Hartman 36:56
but every state the average state is funded to the One of about 70%, you said that you were talking about this on another interview I heard you mentioned, I think that the federal government probably just bail out the states. And I agree with that, by the way,

Dr David Collum 37:10
but that is going to be very inflationary. Right. I thought there’d be inflation before but at some point, you end up with a mass. I just gotta have

Jason Hartman 37:19
it. There’s no other way.

Dr David Collum 37:21
Have it. So we’ve got this unstable system and you know, you cut the red wire, the blue wire, I don’t know. Yeah. Fine, Mark, if they lose the bond market, and they’ll net by definition, lose the stock market. And then you’ll have both halves of your portfolio going down simultaneously. people haven’t seen that happen. That is

Jason Hartman 37:39
one scary thought. We got

Dr David Collum 37:41
kind of the leveraging right now. Someone said oh, this is the biggest communist state ever the language I go, this is the biggest country to ever deal ever period. China could just destroy the planet the language. Yeah, and they

Jason Hartman 37:54
are starting to in China is so overrated. Yeah,

Dr David Collum 38:01
I know, it’s a huge banking imbalance they got a mess on their hands is way, way bigger than anything we got. But if pension funds are funded the 70% at the bubble high, what are they going to be funded to? When we cut 50% off the stock market and beat up the bond market and unemployment goes to 10%? Again, these are normal events. So what are the pension funds going to look like? The only thing that can

Jason Hartman 38:25
save all of this financial mismanagement is technology. You know, well, just the fact that it makes things so much more efficient. It just makes capitalism work in such a frictionless manner.

Dr David Collum 38:40
I’ll take the other side of that. So it takes 20th century we went from horse drawn wagons. And in a century we went from horse drawn wagons to pulling fossil fuels essentially for free out of the ground, just simply the fob with the heat, the SG that used to build civilization. Right civilization represents order that requires heat and energy to create a 20th century we tapped fossil fuels. And the GDP grew at three and a half percent.

Jason Hartman 39:11
Yep. How there’s no Peak Oil problem. Tell all those Doomsday people from the 70s. No Peak Oil problem.

Dr David Collum 39:18
Well, there could be I still think there will be someday maybe, but the techies might save us on that. But the key is, the key is, though, that it’s happening all in fossil fuel gets a three and a half percent growth rate. How many half percent growth out of things and I google one out of Microsoft that and it’s just hard to tell it’s maybe

Jason Hartman 39:37
it’s not those types of technology. It’s materials technology, like graphene and biotech. And I mean, there’s so many amazing things going on. It’s really hard to reconcile. There’s no question we’ve got massive financial mismanagement. There’s no argument on that. But

Dr David Collum 39:54
right, live to see us break the sound barrier. Can you beat that? Can you beat that? I mean, I don’t think so I think that if you can get three and a half percent growth out of the 20th century, to think you’re going to get 5% growth out of the 21st century, I think is nuts. interest. Yeah,

Jason Hartman 40:12
who knows? I mean,

Dr David Collum 40:14
the question is how you grow yourself out of a big mess at three and a half percent a year and I don’t think you do, huh? Very interesting.

Jason Hartman 40:21
David, give out your website and tell people where they can find you.

Dr David Collum 40:24
I don’t have a website really although you can find some stuff at Dave goes rogue and it’s the top link on a virgin computer and you’ve got your corner website though. I got a Cornell website I don’t know what to call it. I’m in the corner chemistry departments and IQ tests we gotta reach me if you can’t find me with that information. I don’t want to talk to

Jason Hartman 40:42
you that’s all a fire

Dr David Collum 40:44
and you can find me on Twitter at David be column co Ll u m, my pinned tweet is my year in review so that that gives you a window in my soul. It’s it’s a reverent it’s long. How long

Jason Hartman 40:57
is it? How many pages about 100 50 Whoa, that’s a book.

Dr David Collum 41:01
Oh, yeah,

Dr David Collum 41:02
it is a book but you know, the people read it. You know, no one has said it’s too long. I wish I hadn’t read it. I don’t know how many read it. I know there’s hundreds of thousands of clicks but then they can be Keeling over dead before they get to page 20.

Jason Hartman 41:15
You never know. David, thanks for joining us. You bet. Thank you. 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.