In today’s episode, Jason Hartman welcomes Nick Sargan, Senior VP and Chief Economist at Fort Washington Investment Advisors. Nick shares his thoughts on Trump’s effect on the market with his pro-business stance. They also talk about budget deficits, capitalizing on a bubble, and the stock market rally. Lastly, Nick discusses his new book, Diving into the Global Shocks: An Investment Guide to Turbulent Markets.
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 complete solution. For real estate investors,
Jason Hartman 1:03
Welcome to the creating wealth show. This is your host Jason Hartman episode number what episode is it today? I think it’s 765 765. Thank you so much for joining me today listeners from around the world. 164 countries listening in hopefully, as they usually are. So today you are going to enjoy this guest. This is a very fresh interview. I just did it yesterday. I think you’ll enjoy it some good insights on the market, the economy housing market, where is real estate going? As I’ve mentioned before, I am pretty bullish. But there is some urgency there are some signs for concern, no question about that. Interest rates are up. And you know, it’s a it’s a dynamic thing. So I would say there is urgency to get in and invest. I do have fairly significant concerns. Actually about the cyclical bubble type markets around the country, the ones that we don’t care about that we don’t really invest in. But those I think, are showing some real signs of being overheated. So we shall see where it all goes as we move into this new year in this new presidential administration, a lot of stuff changing. So one of the great things that I think our new President Elect Donald Trump could do is outlaw call centers overseas. I know Here you go. Jason, another one of your rants. Yes. Another one of my rants. I had this absolutely pathetic experience with a disgusting company, at&t regarding my cell phone. I believe they they basically stole my money, stole my time and stole my iPhone. Yeah. It’s really disgusting. It’s unbelievable. And you know, the interesting thing about the corporatocracy and when you’re dealing with big companies, is that they they all act as though they are responsive to their consumers. Like they want to be helpful and do the right thing and so forth. So they just say, call us. Well, the problem is, of course, calling them isn’t so simple, right? Oh, just, you know, you’ll talk to their reps. And they’ll say, well just call us back. You know, if you need anything. Oh, well, that’s only two hours of my life. Right? It’s the most valuable commodity we all have is obviously, what is it? It’s time. It’s not money, it’s time. So they make it so difficult to deal with them. That, you know, you just don’t bother. And most people just accept getting ripped off repeatedly, by these big disgusting, unethical companies. Yeah, I’m thinking Trump. He talks about keeping jobs in America, right. He recently saved a bunch of jobs with carrier and he he’s kind of this gumshoe politician in a way that gets on the phone with these companies and tries to keep jobs here and he’s not even president yet. So hey, you know Maybe that’ll work out pretty well. I like the idea of certainly I’m sure you do too. How about outlying Philippine call centers? And these drone humans that just read scripts? Hey, look, they do it everywhere they do it in America too. You know, when you’re when you when you’re doing overseas call centers, it’s just that much worse. Isn’t it amazing to you? It certainly is to me how these mortgage companies dealing with the level of each mortgage being on average, I’d say a couple hundred thousand dollars. You get a call center with a $2 an hour person in the Philippines when you call Aqua and bank of america any of these disgusting, terrible companies, right? Not that I have an opinion about this. But you know, Hey, folks, it’s like my leaf blower thing. I was walking the dog this morning and catch an alert. This guy had a leaf blower Of course and a terrible invention. The leaf blower needs to be out Not that I want another law but I’m just saying leaf blowers are are pathetic, terrible device. And so not only was he blowing dust around making a lot of noise and polluting like crazy because of course there’s no emissions controls on those little motors on these leaf blowers and they just pollute pollute like crazy, but it was worse this morning, right? We have these beautiful trees. There’s not many of them in a place like Las Vegas, my new hometown, you don’t see much in the way of fall colors. But there are a few trees and I don’t know what they’re called because I don’t know much about plants. But these beautiful trees with the leaves that were you know in fall colors. Well he was aiming his leaf blower up at the tree to make all the leaves come off and go on the ground so he could blow them around. I mean, just pathetic. Anyway, back to call centers Yeah. And outsourcing jobs. Keep the jobs here in America. Use American call centers. And I think that is a good deal. But it amazes me mortgage companies, especially now, when you call a disgusting company like at&t and you know, have my terrible experience that I recently had with them. And you know, of course, none of this is worth my time because I make much more money in that amount of time than it’s worth. But it’s just the principle of the thing. And you know, you’re being a proxy for millions of other people who are getting ripped off, but don’t do anything about it. millions of other people are suffering at the hands of these companies that just completely rip people off. So when you call and you make it an issue, and you hold them accountable, or at least you attempt to, you know, you’re doing a favor for your fellow citizens. Hopefully, you’re you are a proxy for them to get better care and better service. By the way. Have you noticed I moved Around, yes, I moved out of the closet, or I was recording into the living room. So the the sound changed and I’ve got a new microphone setup coming. Because since I moved, I have not been able to find my microphone. So I just bought a new one. And I’m excited about getting it. So look for sound quality improvements and the podcast here. You know, I’ve never been that much of a sound hound like some of these other podcasters I think it’s more important to have good content and good information than incredible perfect sound with with bad content. Anyway. So you are being a proxy to help people that are getting taken advantage of with these companies but mortgages. That’s the part where it especially amazes me how many billions, hundreds of billions of dollars could have been saved during the mortgage crisis. And even today, as people still engage in strategic defaults where they are like letting their properties go at times. I mean, you know, this is much less than the millions of people who did it several years ago, during the Great Recession, but people are still doing this, where you have these drone humans in the Philippines reading scripts rather than thinking, you know, this is this is hundreds of billions of mortgage dollars that we’re talking about. yet. It all is dependent on a two or $3 an hour. Yes, that’s what they pay them. employee in the Philippines, reading a script instead of a thinking person. Unbelievable, truly unbelievable. This is so irresponsible. It is just nothing short of ridiculous. Anyway, someone asked me about cap rate the other day, and when I was speaking it, well, it was after I did a speech at one of these conferences I just came from, had three conferences in a row. did three speaking engagements. multiple ones at one of the conferences actually, someone asked me about cap rate and why I don’t talk about cap rate more often. Now, this is not new. You’ve heard me mentioned it before, but I’ll just mention it again here real quickly. Remember, cap rate is an evaluation of a property’s performance without considering two vital components. Well, really three, but two, that would be mainstream and one that is Jason stream. Yes. My stream Jason. Yeah, that’s me. Okay. So the two mainstream metrics or elements, that this metric does not consider our appreciation and leverage. That is why cap rate, in my humble opinion is a flawed metric. It is used widely in commercial real estate investing. Why? Well, because these properties don’t have very good leverage, and they generally are Don’t have very good appreciation. Why? Well, the financing for commercial real estate is much less desirable than it is for residential investment grade real estate. And why don’t they appreciate as much? Well, because they are the performance the valuation of the property is tied to income performance. And income performance in commercial real estate is far too logical.
Jason Hartman 10:27
Yes, Mr. Spock logical. I don’t like logical in this case. Because when you have a bunch of leases in say, an office building, or a retail center that an investor might own or an apartment while even an apartment complex, although those less sell those have more aggressive rents and appreciations than the other types of commercial property. But when you have a bunch of these leases, with increases index to what, what are they going to index them to the CPI The good old consumer price index, right? That understates real inflation and is not a valuable measure. So if inflation by the official understated statistics is 1.8% annually, then your rents are going to increase by 1.8% annually. Well compare that now that that drives your value, it drives your cap rate for your property, your capitalization rate, this widely used metric in commercial real estate.
Jason Hartman 11:33
And then you compare that to good old residential real estate where only a small portion of the residential real estate those good old trusty single family homes, the most reliable, most historically proven asset class in the entire world, single family rental properties. Those are sold mostly to illogical people. homebuyers who are Emotional and those emotional buyers do not consider cap rates, or ROI or cash on cash return or any such metric like that. And that is why you see that over the decades, the historical average appreciation for single family homes is somewhere and it depends how you segment it, how you argue about it, you know, whatever, between 6% it’s somewhere around the 6% mark on a national average. Now, that national average has probably been dinged up pretty bad during the Great Recession. But when you look at it over many years, 6% is a reasonable number. In my humble opinion. Before the Great Recession. Most experts would tell you that single family homes appreciated at about 6.7% 6.7% on average, nationwide. So of course, you’ve got the linear and the cyclical markets all and hybrid markets all going into this pie and then what index are using using the very flawed Case Shiller index that only considers 20 markets are using a wider index by like to fail index. You know, you’ve got a zillion ways to slice and dice this obviously, right. But suffice it to say, this is why cap rate is not my favorite metric. It is a flawed metric. Now, what is the third thing? Remember, I talked about the two mainstream things, and then I talked about the Jason stream thing? Well, you know what I’m gonna say regular listeners, regular followers of my work, inflation induced debt destruction, inflation induced debt destruction. That is a very, very important metric to consider. If you don’t know what that is, that very important thing, then go back And go to Jason Hartman comm and type in inflation and do stat destruction on our search bar there, which by the way, we have upgraded, we’re experimenting with some different search engines for our site, I really want to have something good there that makes our very content rich website a very powerful resource for you listeners and investors and go there and type in the search bar inflation and do step destruction. And listen to those podcasts where I have discussed it in detail because cap rate does not consider this at all. In fact, any of the ROI metrics on our performance, do not consider this at all. This is a huge, huge, huge bonus in terms of your return on investment. So we’ve got our meet the Masters event coming up, it is going to be phenomenal. We’re going to have some great speakers flying in from all over the country, attendees flying in from many parts around the world. And this is only once again Folks, go to Jason Hartman calm click on events and register for our upcoming annual meet the masters of income property event, meet the masters of income property and join us for a live event, meet our clients, meet our followers, meet our speakers, meet our experts, our local market specialists, our property managers. This is an event you do not want to miss. We only do it once a year. It’s coming up in January in Irvine, California. A great place to visit if you are if you live in a colder climate. Great place to visit Irvine, California, Southern California in January. You can’t beat that. And hey, there’s lots of recreation around there. If you want to make it a little vacation, take your family to Disneyland go to San Diego. Not too far away. Lots of attractions there Los Angeles Of course, and we will look forward to seeing you at our meet the Masters event that is filling up quickly. Price Increase is Coming. So get your tickets today. Get your tickets today, go to Jason hartman.com. And check that out and let’s get to our guests. You’re really going to enjoy this interview. As we talk about all the things I mentioned a few minutes ago.
It’s my pleasure to welcome Nick Sargent to the show. He is Senior Vice President and Chief Economist at Fort Washington Investment Advisors. He’s a former economist at Morgan Guaranty Trust Salomon Brothers, Prudential insurance and JP Morgan. He’s author of the new book global shocks and investment guide for turbulent markets. Nick, welcome. How are you? Very good. Thank you for having me on your program. It’s good to have you on so Gosh, a lot is changing. As you said when we were talking OFF AIR a little bit, talk a little bit about the incoming Trump administration. You said something that interested me which I’d like to have you expand on you said Trump might be the the most pro business This candidate or well now soon to be president in the history of the Republic. Tell us about
Nick Sargen 17:06
that. Yeah. Well, you know, obviously, in the campaign, he campaigned on corporate tax cuts, reducing the regulatory burden of the businesses face creating incentives for companies to bring funds for offshore. But then, in the subsequent period, now, you look at his appointees, and a number of them all bring business experience, their CEOs and the like. And basically taking I think, a pro business stance and less government interference stance, that’s what I was referring to. Right. Right.
Jason Hartman 17:42
But But is he more pro business than say, you know, the gipper? ronald reagan?
Nick Sargen 17:46
You know, that’s an interesting question. Here’s the difference that I see. I believe that Ronald Reagan was a true philosopher. His philosophy was that government is best which governs least so he believed in small Government, he believed in allowing market forces to carry the day. The difference that I see with Trump is he has some similarities in the sense that, you know, as I indicated before, get the regulator’s off the backs of businesses kind of, you know, so in that sense, he has similar, the biggest difference is that, you know, Trump believes more in interventions such as carrier, you know, etc. He wants to make sure that companies are not moving jobs offshore. Whereas I think ronald reagan would say, not my job to point out individual companies, I have to create the environment, so that they want to stay in the us today.
Jason Hartman 18:44
That’s a great distinction, Nick, I’m glad you mentioned that, you know, Trump, he just picks up the phone and he calls these people and I mean, like a, like a, like a GM shoe salesman. It’s kind of it’s, I gotta say it’s, it’s pretty impressive, but it could be problematic. too, because, you know, the way he and we’re, you know, we’re making what we want to be evergreen content really time timely here. But the way he called out Boeing last week, I don’t know, you know, that’s a little, you know, that puts fear in the boots of every executive.
Nick Sargen 19:16
No, no, I think you nailed it. It’s, you know, basically, I think the difference again, is, Ronald Reagan had core set of beliefs. He had a philosophy. Donald Trump, in my view, is a pragmatist, and a negotiator. So everything is a deal in his world. And you know, that’s fine. I think we could use a little bit of pragmatism in Washington, I think became today logic and a little, a little dem making too. It’s kind of nice when it pro business. Not crony capitalism, hopefully. Exactly. But at the same time, it’s possible that some of his policies will be very inconsistent. And you know, that’s what, that’s why I say, I’m not rushing to judgment. I’m sitting You’re saying I’m a baseball umpire. I got a call it like I see it.
Jason Hartman 20:03
Yeah, very interesting. Okay. Well, you know, what about trade policies? What about your view on inflation or deflation or, you know, just sort of the status quo? To me, Trump seems like he might be pretty inflationary, which, you know, I mean, I philosophically I hate inflation, but as a real estate investor, I love it. It’s the best thing of all. What what are your thoughts there?
Nick Sargen 20:28
Yeah, I think you know that again, Reagan and Trump inherited two different worlds. Ronald Reagan inherited the world of double digit inflation, and therefore his number one goal was to bring down inflation and along with Paul Volcker, they succeeded and that was good, because that brought down bond yields as bond yields came down and markets real estate rallies. So the difference I see is Trump has inherited this very as you allude, low inflation world globally, but he’s a spender he wants to spend on military He wants to spend on infrastructure. He doesn’t want to curb entitlements, which I think is a mistake. So I do believe you run the risk, that with tax cuts and spending increases, you get outside budget deficits down the road. And either that could be inflationary, depending on what the Fed does, or it could lead to significantly higher interest rates.
Jason Hartman 21:26
I mean, it’s it’s pretty odd, because, like Trump’s formula, as you alluded to, there seems like it’s gonna be pretty popular. I mean, you know, he doesn’t want to curb entitlements. He wants to spend a trillion dollars on infrastructure, which is going to create a lot of jobs. Obviously, I’m no fan of government spending, but you know, we’ll get to that, then he’s going to do all these sort of protectionist trade policies that create more jobs and higher wages in the US. If he builds a wall or at least in one way or another gets immigration under control, which is an absolute disaster. Obviously, wages will Just rise. I mean, you don’t need Bernie Sanders to legislate $15 an hour minimum wage, the market will take care of that. It’ll just happen naturally, as a result of, you know, more Americans having job opportunities because they won’t be taken away and undercut him. I know some people say that’s kind of an old fashioned view. But look, it’s a pragmatic view. You know, it seems like everything bodes for a lot of popularity. I mean, I think even, you know, the the staunchest liberals on the left, or feminists that that love to hate Trump will be pretty pleased with their their bank accounts. Am I wrong about that?
Nick Sargen 22:36
No, you know, I when I had to do an assessment when, you know, we had the surprise outcome. And my knee jerk response was, what will go what will go well, with the markets? I mean, and the answer, I think, number one is, you know, businesses will like corporate tax cuts, individuals will like reduction in personal tax rates. You know, most people I think, feel that the last administration went way too far on regulations. So the deregulation is good. So in my judgment, those have been the main forces, you know, behind the stock market rally, plus a government that likes business as opposed to government that doesn’t like business. So those are the pluses. But you know, I think, Jason, when you when you’re talking, the big uncertainty for me is his trade issue. I heard him in New York, and he believes trade deficits are bad, surpluses are good. But I think what he’s got to do, he has to go back and look at the history books under the Reagan years. We wound up then with outsides budget deficits, and I think we’re headed there again, and outsize trade deficits, partly because we spent more as you grow America, we import more we’re in a big exporting nation, to have you seen where the dollar is. It’s at its highest level across the board says oh three and I believe We’ve headed higher as well, that’s going to make it more difficult for Americans to compete. So my argument is well, yeah, and I want to make sure
Jason Hartman 24:07
I get to that young dollar since but go ahead. Yeah, I want to
Nick Sargen 24:10
just make sure if I just close the loop where I am, is I’m saying first round market loves tax cuts t regs. Second round, I think this market rally will be tested at some point next year, you never have a market that goes straight up. And I think it will be if we see a continuation of rising interest rates rising dollar, then people are going to say, wait a minute, what’s more powerful, stronger corporate profits or higher interest rates and a stronger dollar when almost, you know, 50% of us corporate profits, or excuse me, revenues for the s&p 500 companies come from abroad. So stronger dollar makes it tougher for businesses in that respect.
Jason Hartman 24:51
Nick Sargen 24:52
how can the dollar be strong when there’s a whole bunch of government spending that would alternate Mentally bowed for inflation. Because don’t you always have? I mean, aren’t those aren’t those sort of obvious that inflation means a weaker dollar? You know, the dollar buys less, right? If there’s inflation if we base our currency by spending ourselves into oblivion, as we’ve been so good at for several decades, doesn’t that mean the dollar gets weak? or it doesn’t mean something else? It may I think, here’s the missing ingredient, I would argue, again, I think it’s, you know, you’d like book I have a chapter devoted to reaganomics. And so the interesting thing at that time was, reagan came in and we wound up with record budget deficits, he wanted to cut entitlements, but the democrats won’t let them. So that’s what happened. So, you know, so then people thought, oh, we’re gonna be stuck with very high inflation that we had. But that was wrong. budget deficit is not equal inflation. Why? The reason was, we have the Federal Reserve when in allowed interest rates to rise high enough that it choked off the inflation. So you actually had in the Reagan years record budget deficit or record trade deficit, but yet declining bond yields. And I’m arguing because basically the policies that the Fed they weren’t going if you like, they weren’t going to finance the government at super low interest rates. So whether we go back to inflation or not, a key call is what the Fed does, in my judgment. You know, it’s almost certainly we’re going to get the Fed to raise rates this month. But I think next year, the market thinks maybe two rate hikes. My hunch is if there’s if it’s wrong, we could wind up with more is that gonna mean higher mortgage rates? I mean, the Fed doesn’t directly control long term rates, but it certainly have an influence doesn’t directly but I think that the answer is again, You know, not the real estate investors that you are. But but that’s pretty good job over my career and that refinancing and the like, and I would certainly my advice to people is, if you’ve been thinking of refi, do it now Do not wait, because the trend is going to be rising mortgage rates.
Jason Hartman 27:17
Now, would that also mean if you’ve been thinking of buying or investing do so now. And one of the things I’ve been talking about that it seems like nobody’s really talking much about is, is that Trump is our first real estate president. I think that’s kind of significant. But no, no one seems to be saying that I, you know, it kind of seems like with the apprentice and the campaign, we all kind of forgot about the fact that this guy is, you know, steeped in real estate. That’s really his thing. It’s not being a movie star on the apprentice, it’s real estate. That’s that’s what Trump is about. But, you know, that seems to have been kind of obscured at least in recent years.
Nick Sargen 27:57
Yep. And I know I said, I think you’re absolutely right. And then But I think at the heart too, he’s a pro growth guy. And so, you know, so therefore again, you know, you asked, so if you were thinking of going into the market, what do you do? My attitude is if you’re thinking about the real estate market, because obviously it depends on the location. So I’m going to let you determine what the right location is. But I do believe sooner rather than later, because you’re first going to get the growth pop that should help the real estate market. But at some point, we don’t know how high mortgage rates go is a lot depends on as I say, how big budget deficit grow, etc. So my inclination is, you know, right now, I think everybody’s kind of in a optimistic mood that usually helps the real estate market initially, but at some point, we are going to face more of a challenge in the rising mortgage rates. Yeah, so
Jason Hartman 28:54
So what that means and I talked about something that is, I think, really important for people understand is that income producing real estate, you know, well, first of all, I like the linear markets, the boring markets that, you know, aren’t the high flyers that don’t have the big swings, like, you know, this is not New York City, or the West Coast or South Florida, you know, just the sort of Middle America and southeastern markets where, you know, they’re very stable, they don’t have big swings, they do have swings, but they’re not. They’re not huge, and they produce good income. And income property is a multi dimensional asset class. So when you see rates go up, that has the effect of reducing the money supply and softening the price of real estate, right. So that’s bad. Most most investors would say, well, that’s bad, the market is bad, right? But what they never talked about really is that in that type of market, since there are fewer people buying, and as long as the population keeps increasing, the rate puts upward pressure on rents, and that’s good. If you’re already in the game, right? And especially if other investors don’t buy or don’t invest, because we’re rates are higher, that keeps keeps the supply from increasing, and rental properties and it keeps the buyers or the renters from entering the buyer pool. So in two ways that really helps investors who are already in the game, would you agree with that assessment?
Nick Sargen 30:15
You know, what you’re describing makes sense to me. You know, as you said, I think you made the right distinction. I actually was just in New York City, I have three sons that live there. So they’re all renters, and I keep going to them when you’re going to buy and, you know, their own assessment is that the New York market is just off the, you know, off the charts. So it’s possible really, that they could but you gotta, you gotta move outside of New York City to to get something practical, but in the meantime, I just shake my head at the rents they’re paying.
Jason Hartman 30:49
Yeah, they’re very, very true, very true.
Nick Sargen 30:51
Okay. So Gosh, what else did I want to ask you? So the optimistic bump at the beginning of the Trump administration, and then after that, you know, this is the Problem with all of this stuff with economics and arguing about politics. And, you know, what, who’s better for the economy, a Democrat or Republican and all this kind of stuff, right, is that, you know, these there’s a long lag time between the policies and the results of the policies. And you were alluding to that earlier, Nick, when you, you know, you talked about, like, there, there’d be this initial juice that, you know, juices the market. And then hey, you know, someone’s got to pay for this. That’s, you know, after a party, there’s a hangover. Right. You know, would you expand on that idea with Trump a little bit? I don’t know, I think you I think you put your head on it. I think right now, you know, Jason, the way that I characterize it is the market is moving under the expectation that all these policies are going to basically boost growth. You know, historically, in the United States post war era, our trend growth rate of our economy was close to three and a half percent. And then of course, in the last decade with a post financial crisis. It got down to two and so the big debate was many economists think now we’re stuck now in a low growth 2% world. And basically, I think that the excitement about Trump is he’s taking that issue on, you know, saying, I believe if we unshackle business, from the regulations, we have the potential to increase the productive potential of the economy, you know, and right now the market says, I like that. But ultimately, you know, I’m pragmatist. The proof is in the pudding. And so we’re going to find out, you know, in a year or so, are these expectations indeed being validated? If so, you can sustain the rise that we’ve seen, or do we do we see disappointment, we don’t get the growth we expected. Or, you know, again, if you go to me and you say, what’s the worst case scenario, and I come back to have all the policies I don’t have problem on the on the domestic side. It’s only International Trade side, do we basically get into a trade war with China? And, you know, I don’t know about you. But for me, that would add tremendously to market uncertainty. Markets don’t like that. So my downside scenario would be if, if that were to happen, what I’m hoping is, as you said, is Trump is a negotiator. So he talks a tough game to extract concessions from the Chinese. And that’s the happy outcome. But, but we’re playing a little bit of gamesmanship and too early to tell how it plays out.
Jason Hartman 33:40
Yeah, he’s obviously pretty darn bold. There’s no question about that. Talk to us a little bit about your book, global shocks and investment guide for turbulent markets. And, you know, you’ve got some interesting chapter heads here. You talk about Bretton Woods. You talk about oil shocks, anti inflation policies intended in intended consequences, just, you know, let’s kind of dive in where it start where you want to
Nick Sargen 34:04
start on that. Know, you know, you know, I guess the What was I trying to write about? And you know, I’ve studied economics, finance, and what do they always talk about is about markets or economies that are in quote, equilibrium. That’s fine. If you’re doing a text. You know, that’s the core concept. But if you go to me and you say, when were the best opportunities to make a lot of money or to lose your shirt? They weren’t when markets are in equilibrium. They were when markets were difficult, and then let’s call them crises. And so my book is basically saying through my career, I went through two sets of crises. The first was in the high inflation era of the 70s and the 80s. And it began with the breakdown of Bretton Woods that was unleashed the inflationary forces not just in the US but around the world. So we have a series of currency crises involving the US dollar. And so what I’m trying to figure out is are there any patterns As an investor, I can detect, well, guess what? In the 80s, when I was at Salomon Brothers, my colleague and I, john Lipski started to see some patterns in the way that the dollar was moving and interest rates were, and we could take advantage of it. That was the good period, well, then move to the second period, which is really I’d say, the 1990s on the central banks were in the error of their ways. They get inflation under control. And you say, Okay, this is good. And it was, but all of a sudden, we start having asset bubbles, Japan, Southeast Asia, technology, is it too late way bubble, the Euro crisis? So what I’m basically saying is, policymakers thought, hey, if I tackle inflation, I will have stable markets. And that proved to be incorrect. We’ve actually had much more volatility alike. And the bubbles, I contend, are harder for policymakers and for investors to deal with because they go on a long time. Like, let’s take the tech bubble that went on for five years. And there were rational investors who said, this is a bubble. This is a bubble. But if you went in too early, you got wiped out. So my main message is how do I survive a bubble? And then how do I capitalize on it once? it first? That’s the theme of the book. Okay. Well,
Jason Hartman 36:23
tell us about that real quickly. I know we got to wrap up soon.
Nick Sargen 36:27
But my bottom line
Nick Sargen 36:31
my bottom line is the following. What What, what do I look for when I see a bubble? And it’s interesting. Two things, one, very rapid buildup of debt. And to your Jason, it’s usually in the property sector, not the stock market. It’s usually the property sector. Why? Because that’s where a lot of people have their wealth. And guess what, that’s where a lot of financial institutions have their exposure. So if you say today, you know which country is full There’s maybe the next bubble China, because after the opioid crisis, they went wild on creating credit. And they’ve got a huge property boom that many people think is a bubble. Okay? So that’s what I look for in terms of Am I getting close to a bubble or not? But then what I say is my job as an investor is survive the bubble. They’re, they’re tricky. Just stay in the game, don’t do anything. Don’t be a hero in what you can do as you make your money after the market has sold off, but you’ve got to have a plan. And I want to give you the example, in our case, my firm, then I was Chief Investment Officer, okay. In oh eight. I was scared. I didn’t know if the financial system would survive. So then Ben Bernanke came in and did his unorthodox policies to stabilize the financial system I go, I think he’s going to do it. And then when I saw we pass the stress test, so what our firm did is We redeploy assets all at once we staggered in, we first went into corporate bonds because I could get 10% yield investment grade, then we went into junk bonds because I could get 20% interest rates. And then in April of oh nine, we began to dip our toes back into the stock market when we said, the banking system is going to make it. So my bottom line is, models are tricky, but watch depth and watch the property market. So the two most important things to monitor if you’re in one, survive it and then make your money when markets get oversold. You know, because most people are afraid to go back in and you just have to have the courage of your conviction. If you think policymakers
Jason Hartman 38:48
figured out the mistakes that they made. That’s the key judgment calls very interesting stuff. Get on your website, if you would, and tell people where they can find the book as well.
Nick Sargen 38:57
Yes. You know, basically the It’s on Amazon, it should be under my name Nicholas Sargon global shocks you can find it there. I also have a website WWW Nick Sargent calm, where not only am I promoting the book, of course, I write regular commentaries. And for example, right after the election, first question that did come up was one you asked me what those Trump’s victory mean for the markets. And I caught a lucky break. I heard him in New York at the economic club of New York in September, so I could hear what his policies were. So I had already written up if Trump wins, here’s what you should expect. And you know, I think I made a pretty good call. I said, stock market will like it on market won’t like it. dollars going higher. And that’s, that’s been the pattern.
Jason Hartman 39:46
It’s gonna be an interesting time I am bullish as a real estate investor, I think things are going to be pretty darn good. Of course, that doesn’t mean perfect. There will be issues but you know, the one thing we didn’t talk about which maybe we just want to comment on quickly, you know, if you is in your wheelhouse is Dodd Frank and the the Dodd Frank bill has just been this disaster for real estate, it had all sorts of unintended consequences as all, you know, policies tend to have. And you know, it’s just illogical in so many ways. Of course, it’s designed to protect people, but it never really does. And, you know, all of this stuff, and Trump has specifically addressed Dodd Frank as a, you know, he’s a real estate guy. Right. So he has said he wants to repeal Dodd Frank, or at least, you know, got it and modify it significantly. I mean, look at if Dodd Frank is repealed, or at least modified in the right way. I think that’s going to unleash a firehose of money that flows into the real estate financing market. And wow, that that’s going to have a real upswing for at least for a while it’ll be a ride. It may not last forever, of course, but your thoughts Yeah,
Nick Sargen 40:51
well, you know, the real estate market better than I do, but I would say you know, you go work right now and see which sector we’ve had this very powerful stock market rally, what sector has led the way? And the answer is financial institutions, because the argument is that it takes the monkey off their back. And as you say, you know, here’s the way I look at it is go back to the 1930s. We went through the worst crisis in, you know, in 100 years. And what do we do? We came up with Glass Steagall. So you said, Well, what a Glass Steagall do, you can answer it in, you know, 25 words or less, basically, it’s separated, what commercial banks could do in the way of their activities from what investment banks could do. Okay, so that made sense at the time. Dodd Frank 2000 pages of legislation. That is a bunch of a bunch of do’s and don’ts, that it’s almost impossible to say, your point on unintended consequences when you have that much complexity. You have no idea what you’ve unleashed. So, you know, I certainly am in favor of pulling back, you know, a good part of it. And that’s why I think the financial sector is leading the charge on the stock market rally.
Jason Hartman 42:15
Very interesting stuff. Well, Nick, it’s going to be, you know, for better or worse, and I think better for real estate investors, at least it’s gonna be fascinating for years. So thank you for joining us and giving us some insights about this stuff. It’s very interesting to talk about and come inauguration time. I think it’s going to be very busy. I think things are going to change quickly. Trump is a Dewar, you know, he gets stuff done. Usually the first hundred days is when you got to get it all through because then the honeymoon periods over so I agree with you. There’s gonna be a lot going on. Yeah, yeah. Very interesting. Well, Nick, thanks so much for joining us today. 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 This shows 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.