ECONOMIC WINTER: An Important Warning & Call To Wisdom | Episode 181

What’s that cold, increasingly harsh feeling in the air?  If you said “winter”, you’re partly right.  The whole truth is, it’s “economic winter”… a period in which wise investments in real assets will be more important than has been the case for many, many decades.  Get ready for some hard truth… and strategies to weather the storms of the economic winter.  I’m Bryan Ellis.  This is episode #181.

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Hello, SDI Nation.  Welcome to the podcast of record for savvy self-directed investors like you!  Get ready for another dose of Predictably Profitable thinking.

May I share a personal note with you before we begin?  Well of course I can, it’s my show.  Hehehehe.  Today is the 18th birthday of my first child, Kayla.  Boy… this, and her transition to college in the fall… man, it’s been tough on me.  She’s handling it all like a champ, but I find myself tearing up at the strangest times.  Not a fan of this transition.  Though I’ve got to say, she’s made a liar of everyone who told me to dread the teenage years.  She’s been an absolute delight and has never, ever been in any trouble and has always done really well in school.  Now I’m just blabbering.  Kayla, I know you’ll hear this… heck, you’ll probably be the person who edits and posts this show for all the world to hear.  I want you to know how amazing I think you are.  Really.  You’re an amazing young lady and what is thrilling for me is that I can clearly see a number of ways that you’re truly amazing, and you’ve not yet discovered those things about yourself… you think that everybody has the same wonderful qualities that you have, and it’s just not like that, as you’ll soon learn.  You’re special.  It’s going to be a great life for you, kid.  Always pursue wisdom as your highest priority, always operate with gratitude as your prevailing attitude, and view every blessing as an opportunity to be a wise, generous steward.  Do those things, and everything will always work out just as God intended.  I love you, Kayla, and happy birthday!

Well, that’s a season that’s changing in my life… and it’s a big one.

But there’s a season that’s changing for all of us, in America at least.  This season has been in effect in a number of other developed economies for quite a while already, and that is the ECONOMIC WINTER.  It’s a period of the economic cycle that is marked by what I’d describe as a reckoning… a time to pay the piper.

There’s been a lot of foolish excess in the United States, brought on by our leaders at the top and by our own willingness to spend our money in ways that can’t be described as wise.  Many of the policies, in retrospect, look like they were actually designed to weaken this country.  It’s as if Americans vote and politicians govern on the basis of an adolescent idealism rather than giving heed to any consideration of wisdom.

The examples are many.  There’s a serious immigration crisis in this country that has been growing for decades and has accelerated drastically in the last 7 years.  Yes, I’m talking about illegal immigration.  And if that raises your hackles… if the prospect of my using the word “illegal” rather than “undocumented” insults you or brings you to think negatively of me, then your thinking is consistent with the idealism that I mentioned which is antithetical to actual wisdom.

Folks, just because something FEELS good doesn’t mean it is good.  It’s shocking that adults – many in their 60’s, 70’s, 80’s and beyond – simply haven’t learned that lesson yet.

People, SUPPLY and DEMAND are the central consideration in economics.  Nothing else.  Supply and Demand.  Adolescent notions of fairness do not play into the equation, because fairness isn’t a real thing.  Fairness is an arbitrary standard that’s determined not by the wisest among us, but by those who scream the loudest.  Fairness is ALWAYS a distraction, and intellectual smokescreen to shape policy and law to the whims of those clinging to adolescent reasoning.

And then there’s the entire mortgage crisis.  It’s easy to blame that on the ratings agencies and the big financial institutions, and they certainly have culpability.  But every bit of that was enabled by government policies that REQUIRED… actually FORCED lenders to make loans to people who had ZERO ability to repay, and to accept collateral worth far less than the loans.  Every bit of that was precipitated and encouraged by government policy.

All of that leaves us where we are today… Economic Winter.  There’s a confluence of factors at this time… a strengthening dollar which discourages foreign investment in America, a clearly weak and weakening domestic economy, a huge and wealthy generation – the baby boomers – shifting their spending FROM consumables and into healthcare en masse, and a government bent on expanding its reach into and control of healthcare and the financial system.

What does it all mean?

Here’s what I fear… what I sense.  I’m am amateur at this financial prognostication stuff.  So take this for what you will… I sense a certain malaise… a depression… not of a financial nature, but a crisis of confidence.  Consider these words and whether they apply to today:

“The threat is nearly invisible in ordinary ways. It is a crisis of confidence. It is a crisis that strikes at the very heart and soul and spirit of our national will. We can see this crisis in the growing doubt about the meaning of our own lives and in the loss of a unity of purpose for our nation.  The erosion of our confidence in the future is threatening to destroy the social and the political fabric of America.”

Do those words resonate?  If yes, you should be concerned… those words come from Jimmy Carter’s famous “malaise” speech… that’s a time to which we don’t want to return, but which the policies instituted in this country appear to recreating before us now.  That’s the price of basing fiscal policy on idealism rather than wisdom.  That’s the price of giving credence to demands for a $15 minimum wage to people who simply are not worth $15 per hour.  That’s the price of giving respect to foolishness movements like Occupy Wall Street from a few years ago, and the price of actually believing that there’s a widespread epidemic of law enforcement officers targeting minorities for murder.  It’s all sensational and makes for great headlines… but the truth behind the headlines is different, yet the profoundly negative impact on the national psyche is nevertheless powerful and increasingly palpable.

It’s time to let go of idealism and embrace wisdom.  Adult wisdom.  Wisdom that demands responsibility, not just rights.

What are we to do?  You and I as self directed investors are really at the center of this storm, whether you realize it or not.  Our assets are at risk each day, as they should be, generating returns for us.  And for a long time, there have been returns to be had by deploying capital into questionable, but socially acceptable, assets.  But my friends, a time for prudence has come… a time for wisdom… a time for a certain conservatism.

The malaise that I sense we’re approaching won’t necessarily be characterized by a huge sudden fall in stocks or real estate.  Those kinds of flash crashes could be a part of it, but I sense a longer-term doldrums… a stagnation motivated by fear and mistrust.  It won’t last forever, but it could last for a substantial season.

From a purely practical perspective, the thing to do during times of stagnation is to focus your capital into REAL assets, not just paper.  You may think I’m referring to stocks when I say “paper”, and I am, but I’m also talking about cash.  The value of the dollar is high right now.  It’s a good time to convert it into real assets… and not just any assets.  Assets that can, themselves, produce cash.  And not just cash-flowing assets, but cash-flowing assets for which your basis is substantially below current value, in order to insulate you from economic shocks that happen along the way.

My prediction:  15 years from now, the people who today focus on making VALUE-oriented purchases of real, meaning non-paper assets, well, those people will be doing very well in 15 years.  And yes, I do mean real estate… and also potentially some precious metals.

This isn’t a blanket endorsement of real estate as an asset class, by the way.  I think that a KEY component of real estate as a hedge against the stagnation and economic pain that I fear is to come is to ALWAYS and ONLY acquire real estate on a value basis… less than what it’s “officially” worth today.  A good rule is this:  if you acquire real estate at a cost that allows you to rent it out for less than the market rent and still be profitable, then you’ve got a good, strong basis.  I suspect that people buying real estate, even for the purpose of cash flow, but who pay full retail price for it… those are the people who think they’re being wise now but will be bitten in the not too distant future.

My friends, please consider today’s discussion of the Economic Winter which we may now be entering… consider this a call to wisdom and conservatism.  Consider this a call to forsake the idealism that feels good, but is not based in reality and is antithetical to wisdom.  Consider this a call to consider the LONG TERM, and FUTURE GENERATIONS, as important considerations rather than a sideshow.

My friends… invest wisely today, and live well forever!

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