Jason Hartman interviews Daniel Amerman of Charter Financial Analyst. They look at the past decade discussing the US economy. Daniel goes through a number of economic statistics and charts that are easy to relate to. He explains the unfunded liabilities of the Social Security Administration, the hidden tax called inflation, and why the mortgage is a wealth-creating.
This show is produced by the Hartman media company. For more information and links to all our great podcasts, visit Hartman media.com.
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 on now. here’s your host, Jason Hartman with the company LEED solution for real estate investors.
Jason Hartman 1:04
Welcome to the creating wealth Show Episode Number 901 901. Wow, have we come a long way, folks? Yes. In the past, what has it been 1213 years now? Something like that. 901 episodes. Wow. Wow. Amazing. Amazing. Thank you for sticking with me, dear listeners from 164 countries worldwide. It’s so great to have you and really such a privilege and such an honor to be able to do this. And we are going to be increasing. Yes. Increase saying more or more, give me more. Some of you do say that. You really want to listen to me more. Okay, well, I’m honored and I take that on are very, very seriously. So we are going to be posting more shows, with the goal of potentially potentially taking the show to five days or Week, yes, five days a week. We’ve just got a lot to talk about people. And there’s not enough time. So right now, of course, we’ve been publishing for many years, every Monday, Wednesday and flashback Friday. And we’re going to do I’m dropping in some extra episodes, you’ll see those on Tuesdays and Thursdays, to see if we really got enough stuff to talk about to do five days a week consistently forever till the end of time. So look for that, hey, meet the masters of income property coming up faster than you think in January in La Jolla, California. Of course, yours truly will be speaking. That’s usually who’s speaking most of the time. But we do have some actual professional speakers and economist and entrepreneurs and monetary people not hacks like you’re your humble host here. We’ve got Danielle DiMartino No booth, the founder of money strong, full time columnist for Bloomberg view. She, of course, was an advisor to the Federal Reserve, and she’s gone rogue. I don’t know, is that a fair statement? I think it kind of is. So I hope she doesn’t disagree with that. She she’s critical of the Fed. And I love that I think it’s great that we have this open society where people can talk and be critical and, you know, share ideas and share opposing viewpoints. So and then, of course, Brian Smith, who was joined us at our venture lions weekend in Palm Springs, just the weekend before last. He’s the founder of Ugg boots a true rags to riches story, just amazing story. Such a warm, wonderful guy highly sought after speaker and business leader. So he will be speaking, if you have entrepreneurial dreams or you are an entrepreneur now, we always try to weave in a little bit of that although meet them Master’s of income property is about what it says income property. That’s the main thrust of the three day event. Then we have Andrew Mazatlan, the leading economic forecaster and founder of Moneyball economics, some very interesting takes on economics and so forth. So we’ve got that and a whole lot more. Of course, we fly in our local market specialist property management teams from all over the country. And we have guests attend this event from all over the world. We’ve had people from Asia, Australia, well, of course, Europe, don’t forget Europe, Jason Europe. Yes. People come from all over for this event. And I think we are on the verge of announcing a very, very big name, Speaker as well, that you won’t want to miss. We will have some options for you to actually meet all these people and have photo ops with them and so forth. Just like I had that photo op Friday with Gloria alread. Yes, lovely. hater gloria allred arguably the world’s most famous attorney. I was in Los Angeles, as you know, pitching a my free court, online court system that I’ve noticed is my passion project that I’ve had the idea for for, like five years now. Well, it’s finally up and working, you know, sort of, well, I don’t want to say it’s totally working. It’s not totally working. But, you know, there’s an old Silicon Valley saying, by a famous entrepreneur there, forgive me, I do not remember which one, but it’s someone famous, who said, if you are not embarrassed by the first iteration of your product, you waited too long to launch. So the idea is Eric Reese Lean Startup methodology, which is great methodology for launching
Jason Hartman 5:51
high tech businesses. Anyway, that is cool. And yeah, check out free court COMM And we’ve got Dan Ammerman back on the show today. I think this is his maybe his fifth or even sixth time on the show. He also is thinking about coming to join us at meet the Masters in January in beautiful La Jolla, California. So that’s not formalized yet. I do want to make that disclaimer, but we’ve been talking about it. So we might see down there as well giving a speech. And Dan always has some of the most interesting ideas. He’s a true intellectual. I love his work been following it for I don’t know, almost 10 years now, I think. Anyway, he’s back today. That’s our guest today, Dan Ammerman talking about the national debt versus real estate investing. And of course, with the underlying theme of turning inflation into wealth. We debate a little bit about whether there is any inflation in the first place. So you’ll hear us talk about that and some other great stuff. And by the way, thank you to all of you who responded to Jason Hartman calm slash ask. Yes. Jason hartman.com slash ask in this is a page that we will be using for various things over the years. If you’ve got a question, go ahead and go to Jason Hartman comm slash ask and ask me the question. But more importantly, what I’m looking for now is people with unique skill sets. You know, we spend a lot of money. And by the way, I should, I didn’t even really announce this any in any formal way. We are an Inc 5000 fastest growing company in America now. We grew 107% in the past three years. So it’s an honor to have that recognition and, you know, achieve that out of 38 million companies in America. It’s pretty, pretty amazing. And, you know, I should have applied for that before I think I’m pretty sure we would have made it four times in our history, but just never got around to applying. You know, it’s like the lottery. They say, you can’t win if you don’t play. Well. You You can’t win the Inc 5000 if you don’t apply anyway, we spent a lot of money. Why don’t we spend With our own listener family, we’d love to spend it with you. You know, one of our podcast producers, is building quite a little real estate empire for himself and his wife and keeps buying properties through us. You don’t listen to every episode. So that’s great. And we’ve got some of our other vendors who are just buying properties from us like crazy. Why are they made me think? Why do our customers have to go out into the real world, the hard, cold, harsh real world and earn their money there, we’d be happy to spend it with you. So if you are a writer, a blogger, a video producer, if you have any skill set that we can use, go to Jason Hartman, calm and ask. And you know, tell us a little bit about yourself, introduce yourself. Let’s talk about doing some business together. We’d rather spend the money with you our listener family than with strangers out in the world web developers, of course, web developers, software, people all All this stuff, we need all of this stuff. We spend tons of money on this stuff. We’d love to spend it with our listener family and our client family. Jason Hartman comm slash ask. Without further ado, let’s get to another great interview with Daniel Ammerman. Here he is. It’s my pleasure to welcome back a multi returning guest and that is Mr. Daniel Ammerman. He’s a Chartered Financial Analyst, and we’ve had him on the show. Many of you asked to have him back. In fact, one of our listeners just recently asked to have Dan back and I love his work because it’s super wonky. It’s super detailed. And he really analyzes things on a very, very deep level. So it’s a pleasure to have him on the show again, Daniel, welcome back. How are you?
Daniel Amerman 9:51
I’m doing really good. Jason. Thanks for having me back. Good. remind our listeners, where are you located? Are you in like Minneapolis or something? I am on a They’ll side above likes period. Oh, okay.
Jason Hartman 10:03
Daniel Amerman 10:04
So are that more than Northeastern Minnesota just unbelievably beautiful place, particularly these days, Great Lakes area. Good stuff. Well, Dan, what’s some of your latest and greatest, you’ve had a pretty productive year, you’ve got lots of new outlooks and analysis. You know, what, what are you working on? What’s kind of the latest and greatest from Dan Ammerman? Well, what I’ve been working on is being able to exactly identify and quantify a lot of the national issues that we have going on, and then make them very personal in terms of the implications for an average person and also directly tie this in to returns and financial modeling for real estate investment strategies, which is just fascinating stuff. But I guess the starting point is that in my whole wonky way I did something that was quite fun. And that was I reverse engineered the Congressional Budget Office long term outlook. So I can take the US government the way that they look at it, and do various things with expenses, with taxes, with inflation with interest rates, look at all of that, and see the impact for the nation as a whole. And then I can go from that to the impact for individual savers investors, and then the impact on various types of real estate investment strategies. And one way I like to think about it is that there are many different ways that the federal government can deal with the issues that it has in terms of let’s say, the national debt and the in the coming rapidly escalating payments. That could be due to the boomers for Social Security first and then Medicare. And the really interesting part is some ways of doing that are very profitable for Donald Trump and other ways. He would lose a fortune, and I can identify each way.
Jason Hartman 12:02
Now when you say for Trump, are you talking about his personal portfolio or or just his legacy to the country,
Daniel Amerman 12:11
something that people are just not picking up on. But I think is really important in a lot of it has to do with kind of a base ignorance on the part of us in the media who’s not really following these issues is that he is not a generic Wall Street billionaire. He has an entirely different source of funds than many of the famous people you might hear about who have much greater networks even that he does. He’s real estate investor. And I’m not saying that I’ve modeled his exact personal exposure, his own asset liability combination. I’m sure that’s very complex. But he is generically subject to many of the same things that all real estate investors are and that means that he has a very different exposure to what’s being done. When it comes to things like interest rates and inflation and the trade off between them and so forth, then let’s say a wall street investor would and I think there could be some very important implications there.
Jason Hartman 13:09
Yeah. Well, what I like to say Dan is Donald Trump is our first real estate president. You know, I love love him or hate him. And there’s certainly a lot of hate out there, especially in the media. And just to restate my position, I don’t love the guy by any means. I think he’s a bit of a doofus. So I can’t believe some of the stuff that comes out of his mouth. Like, if I had his job, I keep thinking I’d be so much better at that. But the funny The funny thing is, is that, you know, you’re well, but not the funny thing, but the tragic thing is he just can’t get a fair trial. I mean, the media just won’t give the guy a break. It’s it’s, you know, really, that’s just piling on all the time.
Daniel Amerman 13:47
I’m not trying to get partisan with him in any way. I’m trying to just the opposite there. And and the way that I phrase this, is that let’s say Donald Trump had two choices. And they were each equally good for the nation. Okay, neither one hurts the nation. Neither one helps the nation more. So it’s kind of neutral for the nation as a whole. And with one of those choices, Donald Trump makes a lot more money than he does right now. And with the
Jason Hartman 14:20
other of those choices, he loses a fortune. Yeah, well, the obvious choice.
Daniel Amerman 14:24
If we assume Yes, if he has the choice, and it’s all the same for the nation. What do you think Donald would do? I think there’s a lot of information value there. Sure. Sure. Okay,
Jason Hartman 14:33
good, good stuff. Well, well, first of all, I want to ask you before we dive into that, let’s talk just for a moment about the CBO the Congressional Budget Office right now, I don’t know a lot about the CBO. But from what I little I do know, it seems like on both sides of the aisle, they’re viewed as a pretty credible source. I don’t believe much about what the government says, especially when it comes to the country. Price Index or unemployment statistics, you know, the government has a huge incentive to manipulate everything and lie to us like crazy, but I don’t know is the CBO credible? You know, what, like, what, what do you What’s your take?
Daniel Amerman 15:12
Everything’s relative is my take on that. And I look at statistics from quite a few different sources. And they’ve been going different directions. For instance, if you look at the the people who are forecasting the long term future, one of the things I really focus on is financial viability, because this is so tied in with interest rates and inflation and so forth. If you look at the Office of Management and Budget, which is the White House, they do their own long term forecasting. They provide no supporting detail whatsoever. They just say we’re the government trust us.
Jason Hartman 15:52
Scary statement. It’s like I love like the Ronald Reagan quote, I’m, I’m here from the government. I’m here to help her or whatever that was, he said. It was right.
Daniel Amerman 16:00
Oh, it was so funny. And if you if you look at the Social Security ministration, which is another source of remarkable long term projections, I would say they should be writing fiction. Some of these projections are so remarkable in terms the optimism send them, they sort of tell you what they’re doing, but there’s no way that you can track the numbers. And I’m not saying I can do everything with aggression budget office, but they provide sufficient documentation where you can figure out what they’re doing. And that that then gives you the opportunity to check on the reasonableness and to run your own assumptions and kind of see, okay, they’re being you know, this probably not gonna happen. This is way too aggressive, and so forth. But that is what I will give the Congressional Budget Office credit for out of all the government agencies who are doing long term projections. They’re the only ones who will really show you what they’re doing. Insurance, the detail that it needs is replicated, which is why I base my work on their long term. Look, yeah, good, good stuff. Well,
Jason Hartman 17:02
I had Laurence Kotlikoff on the show a couple of times. I interviewed him again yesterday. And then I’m interviewing him again tomorrow. And he’s, as we both know, done a lot of work on this unfunded mandate unfunded entitlement scenario. And you talk about that a lot too. And some of your latest work is on that topic and what it means not only to the country, but to the individual. And that’s what I love about your work. So let’s talk about
Daniel Amerman 17:26
that. Let’s go ahead and dive in. If you look at it, literally, in terms of what is do, first of all, if you want to get technical, there is no unfunded liability. What does that mean? Because the way the law is written is that Social Security ministration does not have to make any payments that it does not have the money to make,
Jason Hartman 17:52
right but it doesn’t make them or we’re gonna have riots in the streets.
Daniel Amerman 17:56
For as long as the trust funds are outstanding. There is deep weirdness when it comes to what the trust funds really are. They’re not at all what the government says they are. And I’ve got a really interesting analysis called two sets of books where I look at two sets of books that the government keeps for the trust funds. And they’re real in one setting. They’re fictional on the other. And it’s just a very strange combination. But once those are gone under law, the benefits are supposed to be cut, unless the taxes are raised. Now, it’s a political question about what happens at that point. But that’s also kind of a distraction. Because there are so many different tools the government can use to change the amount of payouts that are being made. And one of these I’m going to have a new analysis coming out on soon it was just announced a couple days ago, is we have a lot more information on the 2018 Social Security increase, which is about 2%. And that’s the biggest six years. So that sounds like really good news. Except you have this issue with hold harmless, which for people who are not collecting Social Security, many people who have that that may sound like some very strange term. What does that mean? What it means is that Medicare premiums, the Social Security payments, not of your Medicare Part B premiums cannot actually fall in nominal terms. But increases in Medicare premiums are allowed to eat up your entire increase in Social Security, just as long as the rates don’t fall. So what’s happening is you have all these social security beneficiaries. According to The Wall Street Journal, the average increase in the monthly Social Security payment is supposed to be 240 $8 based on the 2% increase, but of that $25 is going to increase Medicare Part B premiums. So the net increase is only $3. And that means Social Security. Even though everyone will tell you that some flesh and index people want you to believe in this stuff, it’s very openly not it’s only partially inflation index, where they’re supposed to be getting even according to government inflation statistics, $28 increase, they’re really getting a $3 increase.
Jason Hartman 20:14
So in other words, that means people are getting poorer, right
Daniel Amerman 20:18
there, CES, the standard of living that can be supported by Social Security is falling.
Jason Hartman 20:24
And, and even even if even if they really got the whole increase the inflation index itself is maligned. So you know, it’s not it’s not real because of that. So it’s like a double it’s a one two punch, right? Oh,
Daniel Amerman 20:38
it’s a triple at least that’s true. It’s the other thing you have to keep in mind is that Social Security is not paid off the CPI you urban is paid off CPI w which is wage earners, which has been substantially depressed compared to expenses which is CPI you over time, and then you take the composition of the CPI You and in fact, retiree expenses tend to be some of the highest cost portions of that index. So even if you were to give the government the benefit of doubt and say, oh, all these calculations are immaculate, they’re working exactly the way they’re supposed to. You can still compare actual retiree expenses to typical CPI, you typical national expenses, and you know, all the accounting they’re doing for cell phones getting smarter and all that kind of stuff. And then you take that and you look at things like the holding harmless, and the adjustments, as well as the difference between labor index the CPI you, and all of a sudden you’re moving it down to 3% per year very easily,
Jason Hartman 21:38
huh? Yeah, yeah. It’s shocking how this is. But what that
Daniel Amerman 21:42
does is that that does two things. And again, because I’m immersed in the heart of this, I see the two side by side it’s just like a perfect meshing that I think people need to be aware of. This is mandatory from the government’s perspective to avoid financial disaster over time. have enormous incentives to make this happen. But that doesn’t change the harm that it does to individuals. I think we’ve known each other since 2008, at least Yeah,
Jason Hartman 22:10
almost almost 10 years, Dan, we’re gonna.
Daniel Amerman 22:15
And there’s been a phrase that I’ve been using the whole time to anticipate what the government’s going to do. And that is that it will meet promises in form, but not in substance. And it will do so in a deceptive manner as a political requirement. And that’s exactly what we’re seeing with social security theory is fully going there in practice. No, it’s not this is being done in a way that the average person doesn’t understand because that keeps politicians in office.
Jason Hartman 22:48
Yep. Yeah, I know. That’s what they’re that’s what they’re motivated to do. So a heavily indebted nation. There are you know, there’s a lot of meaning on a national level and a global level. For that, right, but the typical impact on the investor, right? What does that mean? And, and I love how you tie it into real estate because I know that’s one of your favorite asset classes, at least it used to be, you can, you can correct me if I’m wrong. But you know, I love the multi dimensional nature of income property and how you can, you know, you can sort of switch strategies because of that, but, but kind of tie that in for us, I’m looking at your chart, by the way, you’ve got a great chart on this on your website.
Daniel Amerman 23:29
This is something I’ve come up with recently, and I’m really happy with it. It’s, it’s titled The personal challenges created by the national debt and its analysis matrix. And what I mean by that is that each component here has one or more detailed analysis that I have the show for people exactly what’s going on there. And the top row is the nation. And the bottom row is typical investor impact. So, first and again, when you run the numbers, and this is just fascinating information, when you look at what’s going on right now with the Federal Reserve and what they’re talking about with increasing interest rates and so forth, and you take into account the United States has a $20 trillion national debt, total debt. Okay. And this is this is Incidentally, one of those games that people play is that they’ll say, well, it’s not really a $20 trillion debt. It’s about a $15 trillion debt because the rest is just like this fictional entries, right. But the problem is the fictional entries are the social security trust funds. So either you accept we have a $20 trillion national debt, which is larger than our national economy, which economically history would indicate what really hit the problem area there are we only have 75% of the economy but then Social Security has no safety margin whatsoever. No front
Jason Hartman 24:57
again, when you say the economy, you’re talking GDP, right? Right, which I believe is about 16 trillion now, right, somewhere around there.
Daniel Amerman 25:03
It’s over 18
Jason Hartman 25:06
Oh, well, hey, we’re doing better. You know, there’s another manipulation, look at the way they manipulate GDP. But we don’t have time to go into what GDP
Daniel Amerman 25:14
deflator and the mysterious things that happened there. times. Yes. But so what I look at and then I’ve got specific analysis that tracks each one of these in different ways. But it’s crucially clear when you look at a $20 trillion national debt that interest rates can’t rise too much. That’s one of the things I model is that right now, our interest rates, if you look at the 10 year Treasury, are about 5% of what they were on average, between 1962 and 2007. When they’re a little over 7%, and it’s just amazing what happens if interest rates were to return to historical norms. What does that mean? It means the US government’s deficits rise Everything has a chance to adjust by a trillion dollars a year just in interest costs, which, absent a major, just huge tax increase immediately since the deficits and the national debt shooting upwards out of control.
Daniel Amerman 26:18
So, all else being equal, a heavily indebted nation needs lower interest rates.
Jason Hartman 26:25
So does that mean rates will stay low?
Daniel Amerman 26:30
it there’s other things that can go on to and that’s what are my most recent analysis as I showed how you can have higher interest rates and maintain financial solvency. You do it by boosting the rate of inflation. Okay. But if you have high interest rates and the rate of inflation doesn’t jump is a financial disaster scenario. So one or two things happen either our interest rates and this whatever one is projecting This is what the government’s projecting, stay at a much lower range than usual over the coming 10 2030 years, or at some point things spiral out of control unless the inflation loophole is used. And what does that mean? Well, I also track this very specifically with the analysis in terms of what that does to the average retirement investor, who is, let’s say, using interest bearing assets to save what does that do to their wealth accumulation? And what does that do to their standard of living in retirement, this is just so critical for retirees because more than anyone else, they’re planning on being able to make payments or to pay for their expenses using interest payments. And that whole thing has just been crushed by Federal Reserve actions since the financial crisis. So when we say a heavily indebted nation needs lower interest rates that may sound very abstract to most people. But the bottom line for all of us on a personal basis, less wealth is being created. We have a lower cash flow in retirement than we otherwise would have. So this is absolutely life changing isn’t happening right now. But people are not aware of the connection. And of course, as a real estate investor, on the other hand, are interest rates go up pretty nice, huh?
Jason Hartman 28:21
and continue to be pretty nice though. Yes. Okay. All right. So that means that the population overall is becoming poor, right. Yes, exactly. And, and, you know, I’ve wondered a lot Dan, a rat racked my mind with this. And I just looked at the homelessness and it seems like every city now, it’s just homelessness is just a massive problem. This is purely anecdotal. I have not studied this issue. I just see it everywhere. I mean, it wasn’t like that when I was a kid. And, you know, it wasn’t like that when I was in my 20s. But it’s like it now. And, you know, I just got to think, you know, the the liberals will say, Well, you know, Reagan closed all these mental institutions and ladies, I mean, oh my god, you know, it’s probably too long and go to matter by now, but I don’t know, it really does seem like that is a huge symptom of this possibly. But on the other side of it, you know, things technology has advanced so much that, you know, in many ways we are living better. Now, this is what I hate about hedonic indexing, by the way. I mean, it’s logical, it has a rational basis. But it basically says that if you’ve gone ugly index, and that’s what the government does to, you know, Many will say, I’m sure you will, and I will, to an extent manipulate the inflation rate lower the published rate. It says that we aren’t entitled to progress. You know, I mean, think about it. If you hedonic Li indexed from the time and Edison invented the light bulb, or someone even way before that invented agriculture, or the wheel, you know, I mean, everything would look like it’s free nowadays, but it’s not. It’s simply not true. Right? So,
Daniel Amerman 30:16
again, there’s there’s a difference there. Yeah. And this is something we’ve talked about over the years, is that saying there’s one rate of inflation is inherently fictional, you can’t do it. It’s different for it’s not just different for every person, because every person’s consumption patterns, on average, a little bit different. It’s different for each person in each year of their life. Because our spending patterns change as we age. And this is so critical when we’re looking at someone who’s looking to get in by let’s say, was Social Security payments, their later years because the hedonic of what their smartphone will do for them. Have one is almost meaningless compared to the much larger share of their income. Can I buy food? food and shelter? Yeah, right. Those have been rising faster than the overall inflation index.
Jason Hartman 31:15
Okay, so So can we pause a little bit, I want to get into your analysis here. But let’s dive into this. Is there any inflation or not? Because that’s what we’re kind of talking about. So let’s just go a little deeper if we can, in that. Go ahead with what you’re saying. And I want to throw some questions at
Daniel Amerman 31:31
you. A lot depends on the individual. I have been arguing for years, as you know that the government has an enormous incentive to choose a method of inflation calculation that will present lower results than would otherwise be the case. To some extent, they almost have to do that because that determines how much gets paid out social security that determines how much gets paid out to workers who have cost of living adjustments and so forth. So there’s an enormous incentive to do that. And then we also have other factors, like the reporting, Rosy economic statistics is based upon having a low rate of inflation. You know, the lower the rate of inflation you report, the higher the rate of economic growth, right. Yeah. So so there’s there’s multiple different reasons for them to do that.
Jason Hartman 32:24
Oh, yeah. Yeah, no, no one will deny, at least No, none of my listeners will deny that the government has an incentive to manipulate the numbers. You know, that’s for sure.
Daniel Amerman 32:34
But you know, the other things you’re looking at too is and of course, an awful lot of the shelter component. depends on where you live in the country. For many areas in the country to say we have almost no inflation when you look at what’s been happening to rents. That’s like a gross insult Oh total or when you look at what’s happening to housing payments, and
Jason Hartman 32:57
here’s, here’s one of the problems with the housing You know, it’s just so maligned because the density of housing has increased dramatically, you know, in 1972 or 1974. Someone could buy their first home in this beautiful area of Newport Beach, California called harbor view homes. Okay. And they’d get it they’d get, you know, or or it could be, you know, even not as nice in area, Lakewood, California, that sort of stereotypical baby boomer you know, post World War Two area right, they get a quarter acre lot. Yeah, their square footage wouldn’t be huge that square footages are on average, you know, higher today, but it’s the square footage of living in a condo or a townhome versus a single family detached home in a great neighborhood with great schools on a big lot and, you know, greenbelt and walking areas and you know, the location being close to the beach, etc. It’s not, you know, the stuff is so fun. faults the way it’s presented. And you and I talked, you know, just to give you a little more firepower for this discussion. You and I talked about the Self Service revolution, we’ll call it before we started the show today. And, you know, so much of what we do today is self service. The service component has gone away. You know, we’re doing everything online, we’re doing it ourselves. We used to have a lot of this stuff done for us. We used to not pump our own gas. Now we do. You know, I hate these restaurants. I go to these, you know, modern kind of cool, trendy restaurants, where you stand in line to wait to order your food, and then they do bring the food to your table. Sometimes they don’t even do that. And they still expect a frickin tip. I’m like, you’re not waiting on me.
Daniel Amerman 34:51
It’s 20% tip.
Jason Hartman 34:53
Yeah, yeah. Yeah. You know, when they turn that little iPad over, and they’re using square whatever, you know, the suggested tip is 20 percent 25%. I mean, like, I was in a taxi in Austin, Texas, a few months back. And the the tip choices weren’t 25 to 40% for this dirty, disgusting taxi. I mean, are you kidding me? Like, I’m happy to tip but not for self service. Okay. He like, like the restaurant example is totally clear. I mean, you know, you know, so that is that is inflation. You know, you used to always go to a restaurant you always got waited on. Now you’re not getting waited on. I mean, sometimes you are obviously but there’s a lot more inflation that can’t really be calculated, or we don’t really see or acknowledge right.
Daniel Amerman 35:40
Yeah, I mean, there’s other I think the best example, and this is true also of corporate employees, which is particularly true for anyone who let’s say is self employed and playing their own insurance to claim a low rate of inflation. When you look at what has been happening with health care premiums and deductibles is fantastically insulting.
Jason Hartman 35:59
Yeah. Yeah, so the so the deductibles are higher, the premiums are higher, but Dan, not just that the exclusions are higher. Okay. If you look at any insurance policy you have nowadays because these insurance companies have been litigated and litigated, you know, they just exclude everything now you got to buy all these separate policies nowadays. You know, like as a business owner right you know, your your basic business owners policy that used to cost you know, very little money used to cover all sorts of things employment issues, you know, media liability, defamation stuff like this. Now, you got to have a separate policy for everything, you know, and so that’s another sign of inflation Great point. You know, look at it look at a typical investors you know, homeowners insurance policy nowadays, you know, it’s does it cover wind and hail and you know, it they got a million exclusions, another sign of inflation.
Daniel Amerman 36:56
Good. It’s not in this not included in the indexes. Yeah, right. Right.
Jason Hartman 37:00
Okay, so your contention is there’s a lot more inflation out there than we really see. And I’m gonna agree with you, right.
Daniel Amerman 37:07
And you can look at that on multiple different levels. And that’s part of it too is understanding there are quite explicitly multiple different levels if you dig into it, and you can explain a great deal there. But again, when you run the numbers over time, and this is very traditional, we have, you know, this goes back many centuries. If you have a heavily indebted country that controls the value of their own currency, they have influence over the value of their own currency. What do they do? They inflate, they have to now some people focus just on the extreme examples there and they look at hyperinflation, you know, essentially defaulting to inflation or something like that. There’s certainly examples of that. But the much more common historical norm Particularly if you have a functioning economy is to moderately increase the rate of inflation. And this is part of what I did in a recent analysis. And I was looking at what this does to standard of living in retirement going out 10 years, 20 years, 30 years. And if I recall, right, the numbers that that I was generating, or a 10 to 15% reduction, 10 years out, 35% 20 years out 50% 30 years out, just from a very just that little, little more than 2% per year difference in the rate of inflation. But at the very same time that’s going on when you’re doing what I’m doing, you’re running the national numbers, having a 2% higher rate of inflation is magic, in terms of maintaining financial solvency,
Jason Hartman 38:48
right, right and in free, nothing is free. And Dan, what I always say is that, you know, you can pretty much bank on inflation because you know, one thing I was Say never bet against the Fed, align your interests with the most powerful forces, the human race has ever known governments and central banks that have standing armies. Okay. And, and, you know, it’s a great business plan for governments. I mean, look, we can grouse all day about how bad fiscal and monetary policy is. But the fact is, if you’re the government, and you know, the incumbents want to keep their power and give out goodies. They’re not going to stop doing that. Just look at the incentives right, follow, follow the incentives.
Daniel Amerman 39:34
Oh, they’re enormous, and along that enormous
Jason Hartman 39:36
and then so they’re gonna stay in office, they’re gonna keep spending and, you know, keep being profligate. And inflation is a fantastic business plan for governments, isn’t it?
Daniel Amerman 39:46
Oh, it is. It is. And you can tell that I’m not just modeling the future. But looking back at the past, I have kind of a financial analysis that I just put out yesterday, I took a look at Warren Buffett’s project From last month that we would be at dow 1 million and 100 years, down 1 million. Wow, wow. And I ran the numbers on it, you know, because then he realized when he says that people think that was ridiculous, and he goes, Oh, no, this isn’t ridiculous at all. Just run the numbers. Well, okay, we’ll come up in this challenge, and I ran the numbers. And there is virtually no profit in going from dow 23,000 to dow 1,000,100 years.
Daniel Amerman 40:31
If we have a historically average rate of inflation,
Jason Hartman 40:34
you’re you’re just strictly keeping pace with inflation. You’re just you’re just hedging. That’s all
Daniel Amerman 40:39
particularly on an after tax basis. Oh, wow. Your annual return is four hundredths of 1% per year. In inflation adjusted terms. If we go to dow 1 million, it’s just amazing. Because about
Jason Hartman 40:52
1 million in 100 years and you haven’t made any money that’s shocking. And Dan, you know what, I’m not a fan of his Although I do think he’s what I call the master of the soundbite. He’s been on the show before and that’s Peter Schiff. And he said it, you know, he just has the zingers that are great. I mean, but you know, I think he’s, you know, out of his mind and a lot of things. But one of the things he says is he says, if you look, you know, at the at the market from the Great Depression did from 1929 until about 2007 or eight I believe, of course, these are important periods because we had huge events obviously in those times, right. But But what he says the point is still very valid. He says, He says the Dow has is kept pace with gold. Everything is an illusion created by inflation, the returns have been dividends, that’s it, nothing else.
Daniel Amerman 41:51
I mean, the dividends dividends used to be major too. Yeah,
Jason Hartman 41:55
right. And then now,
Daniel Amerman 41:56
it used to be the dividends averaged about twice What government bond yields were? Well, and that was the that was by far the biggest source of long term investing in stocks. And that’s been something I’ve been writing about for years, is that when everyone learned that stocks were the magic wealth creation machine, they bid prices of stocks up so high that the dividend levels crashed, and the number one long term source of wealth from the stock market is no longer there. Yeah, it’s just amazing.
Jason Hartman 42:30
It really is. It really is amazing. Okay, so what does this mean? Let’s kind of circle back to that main point. We’ve touched on it. But you know, with your chart here, tell us what it means to individuals and investors. And let’s kind of sum that up.
Daniel Amerman 42:46
Okay. If we look at the nation, and you look at the numbers over time, for a nation that has a national debt that exceeds the size of their economy, which is true The United States, if they’re going to maintain financial solvency, they need a higher rate of inflation.
Jason Hartman 43:08
It’s just so so expected because it’s coming to it.
Daniel Amerman 43:12
Yes, I’m not saying it needs to be hyperinflation, I’m not saying even needs to be 10% per year, 8% per year, but five 6% per year can really get the job done with without getting people too terribly upset, particularly if is reported through various measures as being less than that. Right. And what that means is that you have lower purchasing power for what wealth is created. Okay, let’s put this together. All right, what do we just go through all else being equal. A heavily indebted nation needs lower interest rates simultaneously, all else being equal. A heavily indebted nation needs a higher rate of inflation. So what does that mean? You have less wealth created. You have that wealth that is created has a lower purchasing Power, you have a lower cash flow in retirement, and that cash flow in retirement has a lower purchasing power
Jason Hartman 44:08
device. Right. So what do you what do you what do you do as an investor?
Daniel Amerman 44:14
Well, the first thing is to understand what’s happening here. And I shouldn’t laugh because it’s funny. This is so right for it to so many people that I work with this stuff all day long. And it is, you know, it’s crystal clear. What’s going on here. What’s happening? I think first and foremost, people need the knowledge to defend themselves. If you can do it, and I’ve got a lot of materials on that. I’m a believer, not just in income properties, but in income property asset liability management.
Jason Hartman 44:48
Okay, explain that if you would. Um, I mean, briefly,
Daniel Amerman 44:54
your and again, we’ve had this discussion
Jason Hartman 45:00
Want to bring people up to speed?
Daniel Amerman 45:03
return to it that
Daniel Amerman 45:04
you are a big fan of the income property.
Daniel Amerman 45:10
And I’m something much wackier. I’m a big fan of the mortgage, not because I like debt. But because debt can do very unusual things for you when you’re using asset liability management strategies that are simply not available to an ordinary person. Corporations use it all the time. Major investors use these things all the time. But individuals don’t.
Jason Hartman 45:36
Yeah, very, very good point. So use that debt. And the debt deflates through time with inflation. And, you know, I always say, Dan, that most people think they made money on the real estate deal because the property appreciated in value, but largely, that again, is an illusion created by inflation, right because they usually just practice it. It just tracks it. But when But when you leverage it, then you multiply that so if the inflation rate is 5% and you’ve got 80% leverage on that asset, then you you have that multiplier effect that that five to one ratio right which is fantastic. But also you have what I call inflation and do step destruction and I, I talked about your charts all the time on that that are just incredible. And you know, you have that that chart that I you know, we famously talked about showing someone who bought the median price home in 1972. And then they kept it for 30 years, paid the mortgage all along, and they basically got paid to borrow the money they got paid to live there. They not only live there for free, they literally got paid to live in that house for three decades. Incredible, right?
Daniel Amerman 46:53
Yeah. If you if you if you do look at the numbers on a national basis over most long term, holding periods, you do not come out ahead, buying a residential home, particularly when you take into account the aging of the property. However, when you take into account the inflation driven destruction of the debt that’s financing the property, you come out hugely ahead. That’s really this.
Jason Hartman 47:20
Yeah. Yeah. And and see, see you got to buy, like I would say that the mortgage is, is I’m more a fan of the mortgage than the property. So I really am i i agree with you completely. But in order to get that great mortgage, that long term, fixed rate, low cost, arguably negative interest rate, I mean, arguably, depending on what the real inflation rate is, debt, you have to buy the property. So the property is sort of a symptom of, of getting this great mortgage debt, right. Yep. Yeah. Very interesting, very interesting way to look at things, no question about it. Well, then, is there any question? I do asked you today or anything else you want to share before we wrap it up? No, I think we’ve had a good discussion. I’ve enjoyed it again, Jason. Okay. Yeah, me too. give out your website, tell people where they can find out more about you.
Daniel Amerman 48:10
Daniel ammerman.com and that’s Ammerman is spelled a m er ma n
Jason Hartman 48:19
fantastic Daniel ammerman.com. Dan. It’s always a great, great to have you on the show. So thank you for joining us again today.
Daniel Amerman 48:27
Thank you, Jason. It was fun talking with you.
Jason Hartman 48:31
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 of any other specialized area, please consult an appropriate professional and we also very much appreciate you viewing 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.