Jason Hartman plays a Flash Back Friday episode from November 2016. He hosts Gary Pinkerton to help breakdown the article, 27 Charts That Will Change How You Think About the American Economy. They discuss the US economy related to productivity, demographics, or inflation. Later they discuss the incredible opportunities that await real estate and income property investors.
Welcome to this week’s edition of flashback Friday, your opportunity to get some good review by listening to episodes from the past that Jason has hand picked to help you today in the present, and propel you into the future. Enjoy. 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 1:07
Welcome to the creating wealth show. This is your host Jason Hartman with episode number 749 749. Thank you so much for joining me. I have talked many times before about how the next 10 years of demographics and psychographics. In other words, people state of mind, not just demographics, and also economics, how they Bode so well for us as real estate investors. How there is this tsunami, this tidal wave, this absolute avalanche of great news for us as real estate investors coming out the rental market over the next decade, maybe longer, really, really, maybe this is a 15 to 20 year, maybe This is a decade and a half, two decades of phenomenal opportunity for us as real estate investors. I don’t know, it remains to be seen, but certainly the near future, the next three to five years and I would even venture to say the next five to seven the next decade. It looks pretty darn sure that we are in a phenomenal, phenomenal position as real estate investors, investing in the most historically proven asset class in the entire world income producing real estate. Well, here’s a recent survey and I believe I shared a little bit of this with you on a prior episode. But I’m going to go into a little more detail this time, because we’ve got one of our clients coming on the show today. And that is Mr. Gary Pinkerton. Yes, Gary Pinkerton, the now retired Navy submarine Captain Yes, this guy can actually run a nuclear reactor. Pretty cool, huh? He’s gonna be back on the show today, talking a little bit about some different issues in the economy, some different data that I think you’ll find interesting, and a bit of his client case study as a real estate investor. So I think you’ll like that. But before we get to that, this is about the American savings rate. And again, this is one more piece of evidence, just proving how phenomenal The opportunity is, for us, for real estate investors for income property investors, and it is overall sad news. But you know, me, I am a realist, I am realistic about this stuff. I do think it’s an amazing time to be alive. There are so many incredible things going on. And at the same time, there is this divide There’s the digital divide. There’s the economic divide, there’s the concentration of wealth divide. There are a lot of problems, obviously at the same time, and this is one of them. But as the Chinese say, crisis is an opportunity riding the dangerous when every problem is an opportunity. In the Chinese language, the symbol for crisis is identical to the symbol for opportunity. So literally translated, crisis is an opportunity. Riding the dangerous wind is the way that works, right? And so this is a crisis, but it is an opportunity for us as real estate investors is an opportunity to serve a huge segment of the population. And when you hear a couple of these stats momentarily, you’re going to see that this segment is ginormous, ginormous. Yes. No, that’s not a word listeners. I know it’s not a word. It’s one of those made up words, but it’s ginormous. That would be gigantic and enormous. Put together. There you go. I don’t think you need me to explain that bit here. But anyway, I’m kind of a literal person. Okay, so 62% of Americans have under $1,000 in savings. And this is a survey who did this survey here? Well, it’s on go banking rates go banking rates calm, which I guess is website like bankrate.com It looks like and they’ve got some cool charts here, colorful graphs that illustrate all this stuff. But let me just share with you the first one before we get to our client, Gary Pinkerton and our guest today and talk to him. Okay, so 21% do not have a savings account 21% of the population mind boggling, okay? 28% have zero dollars, I guess they have an account but they have no money, or maybe no money to speak of in the account, maybe they have a nominal amount of money in that account just to keep it open. It’s counted that way as zero dollars. 14% have, hey, this is considered Great. Now I’m sure people listening will think this is you know, no big deal, right? But 14% of the population over $10,000 $10,000 or more in savings. Okay, let’s go to the bottom rung. Again. That’s the top rung over 10,000 10,000 or more, just the minimum balance requirement 9% of the population less than $1,000 in the bank. In savings 13% of the population 1000 to 40 $999 10% of the population 5000 to 9000 999 5% of the population 14% of the population with 10,000 or more. Can you believe that? That means that 62% of the American population now assume, of course, this is the adult population we’re talking about, you know, a little baby wouldn’t be counted in this right. But 62% of the population have less than $1,000 in savings. Do you think they’re going to be able to move into the homeownership pool anytime soon? Do you think they’re going to be homebuyers? Not likely, folks. This is a market is a market of opportunity. It is a market that needs to be served. Hopefully, our country will get its act together. And we will start moving away from these idiotic left wing policies that I would argue, because we’ve had five decades of left leaning policies in this country. Okay, forget about who the President is right? Just look at the Congress, the Congress has largely been controlled by the left for the better part of five decades. And in many ways, you can argue that this problem relates to our left leaning social policies, because it causes an anemic economy through government spending, through inflation, admittedly low in recent years, but overall over the last five decades, very high, especially since 1971. You know what happened in that year, of course, went off the gold standard. So this is just mind boggling. It really is showing once more, once again, that there is a massive opportunity and a massive market that needs to be served for us and by us as real estate investors. Okay, without further ado, let’s get to our guest today. Let’s talk to Gary. We’re going to talk about some charts and some data and a little bit of case study. Make sure you visit Jason Hartman, calm, make sure you check out our new website, by the way, if you haven’t done so yet, its newly revised website. If you looked at it too early, there were a lot of things that we fixed on it. So go take another look. Maybe you looked at it too soon. But take a look at it. Lots of great resources there some great products in the store, and also at Hartman education calm and we are planning a phenomenal venture Alliance weekend in very easy to get to Phoenix. One of the well voted actually the first Not one of the friendliest airport in the United States, which I would agree with. I love the Phoenix airport. It’s it’s real, real easy, really short lines really fast to get. Get in, get out. It’s a great airport. Love it there. So join us in Phoenix for the venture Alliance weekend. That’s the first weekend of December visit venture Alliance mastermind calm or Jason Hartman, calm click on events. And make sure you join us for that you can come as a one time guest, or you can join. We’ve got a couple of great new members and we got some fantastic speakers that we’re lining up for this event. One of them an excellent guest who’s been on our show before, I’m not going to tell you who he was. But he was phenomenal, really amazing insights on the economy and the markets. He will be speaking at our venture Alliance event in Phoenix, first weekend of December and we’re going to have some other fantastic guests. speakers and some fantastic, fun first class events. So be sure to join us venture lions weekend, first weekend of December. Let’s go to Gary. Hey, it’s my pleasure to welcome one of our clients back to the show. He is also a venture Alliance member. And that is Mr. Gary Pinkerton, who sent me a fascinating article on vox.com last week, and it’s entitled 27 charts that will change how you think about the American economy by Timothy Lee. And this is just a fascinating group of charts. Gary has picked out some of his favorites he wanted to chat about and maybe ask me some questions about sci fi, see if he can stump me on any of these. Always have an opinion, even if it’s wrong. That’s my disclaimer. And Gary, welcome back to the show. How are you?
Gary Pinkerton 11:53
Thank you very much. I’m doing great and I’m really looking forward to talking again, I always love being I think this is my third one, maybe second one. I think I did an intro With you, if I count that it’s the third one, but really enjoyed each time and certainly love talking about these topics.
Jason Hartman 12:05
Yeah, yeah, that’s it’s great to have you back on the show. And Gary, give our listeners a sense of geography. You’re an East Coast guy. Where are you located? Exactly. So
Gary Pinkerton 12:12
I’m in New Jersey, Belmar New Jersey, which, if you’re ever heading up the New Jersey Turnpike, you’ll see the the turn for six flags and 195 and it says shore points. And so we’re basically halfway between New York City and Atlantic City. They’re on the coast of New Jersey, just a beautiful place. And it was the epicenter for Hurricane Sandy a few years ago.
Jason Hartman 12:33
Yeah, man, massive, massive rebuilding project there for sure. But you’ve been a venture Alliance mastermind member from the beginning and I thank you for being involved in venture Alliance. It’s it’s been great to have you there. And you always contribute such great stuff and you’ve got such a good financial mind and, you know, very analytical. You are a recently retired Navy submarine captain. So you you know how to run a nuclear reactor in your spare time, right?
Gary Pinkerton 13:00
I do I’ve done a few of those. Yeah, it’s, it’s not the easy work, but it’s certainly challenging. And you know, very satisfying, you know, just a great, a ton of great memories. I just finished Actually, my 25th reunion at the Naval Academy saw a bunch of submarine buddies as well as you know, just pilots and surface warship guys and Marines and some great Americans that I’d kind of lost touch with so great times, but you did do some times in nuclear reactors.
Jason Hartman 13:25
Wow. That’s That’s amazing. And you know, the the sad thing about that whole deal with your, your naval career for me is that whenever I want to ask you questions about these nuclear submarines, you can’t tell me anything, because it’s all secret. It’s all classified. You know, you won’t tell me how deep you go, how fast you go.
Gary Pinkerton 13:44
It’s just nothing. Right? Well, the good news is that the longer I’m out the less relevant I become. And you know, I’m getting older like all this right. So eventually they’ll think I’m seeing I’m I’ll be able to type answers. There you go. There you go. Yeah,
Jason Hartman 13:55
that’s how you’ll blow your security clearance. Okay. Got it. Got it. Hey Gary, what got you interested in real estate? And how long ago did you discover my podcast and become a client?
Gary Pinkerton 14:06
So it was 2011. Just about mid 2011. I was I was leaving command I just taken over a position and a great job at the Naval Academy, a two year position there and had a lot more free time than I did on my submarine, as you can imagine, and I was searching for a way to shift active income into passive You know, I’ve read Robert Kiyosaki books over the years, I really just, I mean, they just spoke to me, Rich Dad, Poor Dad, and most of the others. You know, he’s prophesy it all just made a lot of sense to me. So I was looking for, you know, following his model of shifting and to, you know, passive cash flow income. And, you know, I’m a mechanical engineer, and the thing that made most sense to me, you know, not buying the coin laundry machine, although i think that that facility may be a great idea too, but for me, it was about real estate and buildings. And so, I was looking into that. You happen to have a great podcast and I started listening in the team I think it was and I’ve certainly listened to all of them. And I just kept gotta become a junkie with that and of your real estate guys radio, I listen to them quite a bit as well. And I, you know, so I first got my first property in the end of 2011. In St. Louis, I bought a few more there. I’m up to eight and my wife Susan is today In fact, we’ll we’ll get her first three and we’ll she’ll be at six by the end of this month. And hopefully if all goes well, we’ll have Susan topped out and then we’ll go back and start focusing on Gary again.
Jason Hartman 15:32
Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday. And then what you’re referring to is the 10 loans for each spouse, the 10 Fannie Mae Freddie Mac loans for each spouse, I got a question for you about living on a submarine and working on a submarine. Maybe you can actually answer this one and I have a feeling I already know the answer. Are you able to download my podcast or When you’re underwater, so
Jason Hartman 16:03
technical No, not very far underwater. You know, we consider periscope depth underwater. And, and we can actually do that nowadays, in certain circumstances. So it’s when you’re basically on training missions. You know, you’re not someplace where you need to be really covert to me, we do have satellite capabilities. And yeah, so I mean, we can get internet, we can, you know, chat back and forth with family members. Now, it’s totally different than it was 20 years ago when I started this process.
Jason Hartman 16:28
Yeah, that’s great to let all the people you know, in the military, be more in touch with their families and so forth. That’s, that’s gonna really be a morale booster. I’m sure. So that’s, that’s fantastic. Well, hey, these 27 charts are fascinating. This is just a really interesting article, you wanted to talk about some of them with our listeners, you’re an economics wonk, and you’re really into this stuff as EMI, which ones would you like to go over? And maybe let’s pick a few of them and talk about them.
Gary Pinkerton 16:54
So I think we should talk you know, just about the first few and then we’ll jump forward a little bit but the first one is, you know, number one is is kind of an eye catcher probably on purpose. But he says he starts things off here by saying that, yes, America still makes things and you talk, he’s talking about the manufacturing sector, real output, he shows, you know, a trend from 1987 to the present. And as you would expect, you know, it went down pretty substantially in 2008, and nine, but it’s backup, and it’s at the highest level of production, since they started recording in release. And so since the beginning of this chart in 1987, and I think that does surprise people. But I believe also that I’d be interested in your thoughts, but but I think the perspective is that, you know, no one works in industry anymore. And that’s somewhat true, because no, he talks about it, because it’s automated, right, right, the efficiency of the companies. But, you know, the bottom line is that America is still producing quite a few goods. Right, right.
Jason Hartman 17:47
So the if you look at the manufacturing job sector, it is suffering dramatically, but if you look at manufacturing output, it’s still very strong. So this is the this is the paradigm of automation and robotics and technology in general. And what it may be leading to, is the fact that, you know, even even some of my most and I shouldn’t say as the fact that but maybe it is a reality, a harsh reality that some of even my most libertarian friends are beginning to face is that maybe we are going to have a large segment of the population that is just permanently unemployed, or are massively underemployed. And maybe the government will have to provide a living wage of some sort to these people to keep the the world stable. But, you know, that isn’t as bad as it might sound because all of this technology makes goods so much less expensive, that you know, maybe you can do that for a lot less money. And and then it goes to the question of, you know, my investing philosophy that is, you know, I say inflation is The home run. That’s the best of all scenarios. But a lot of this is anti inflationary. The monetary and fiscal policy, very inflationary technology is its opponent, it is not inflationary. So we shall see which way it will go. But there’s a couple charts that actually relate to that as well. Right, Gary? That’s right. Yeah.
Gary Pinkerton 19:18
So one of them is, you know, even just going to chart to still talking about manufacturing. You know, it shows that the, the jobs in the service sector have been steadily climbing while the jobs in manufacturing are flat or going down a little bit. Even while you know, US population is growing. And my question was, is that really bad? You know, kind of back to your comment, I’m not sure it’s bad. You know, manufacturing jobs are not, you know, a dream in my opinion. I’ve done a few of them and they’re hard work and people don’t live really long lives and, and in general, they don’t enjoy you know, the back and be back breaking work that comes along with that. So, you know, people will often reminisce about The good old days I’m not sure they were good old days in the factories, you know?
Jason Hartman 20:03
Yeah, that’s a very good point and many experiments and issues and labor unions and child labor and the Hawthorne experiment and working conditions and so forth, speak to a lot of that point that you raised about manufacturing jobs. The other thing that says if you look at the other side of this issue, and you look at it not from the producer and the the job and employment side, but you look at it from the consumer side, generally speaking, manufacturing jobs to me represent needs, but largely not completely, but largely they represent things people consider necessities or needs, you know, having a car having clothing, having a house having all the all the goods that we buy, right, but services really represent once and they represent a higher level of lifestyle. So when it comes to massages and going out to eat at restaurants, You know, concierge type jobs and in all of these service oriented jobs, even the Lyft and the Uber driver, these are sort of higher level things. They’re, they’re things that really indicate a degree of progress in that life is getting better. And and people are more prosperous. I mean, I was talking to my mom somewhat recently about the obesity epidemic. And she says, you know, Jason, maybe it’s just the fact that just people go out to eat so much more often. I mean, when she was a kid, nobody ever went out to eat, you know, you just didn’t do that. It was way too expensive. And when I was a kid, certainly the restaurant world was not nearly as big as it is today. And so that represents a huge growth in the service sector. Right. I mean, would you agree with that, you know, like service jobs are are a sign of prosperity, I think
Gary Pinkerton 21:50
I agree. And, and it’s prosperity and a lot of those being typed elective, elective type services that you that you go for, like you like you mentioned, you know, Being able to ride around in an Uber, but they’re also, I think, an indication of longevity because I think there’s a lot of service industry coming from, you know, all of the retired baby boomers and for those older than the baby boomers that need those kinds or desire those kinds of services and have the ability to pay for them, you know, I mean, the the cruise ship industry right now is booming. Some of it, I think, is because of, of lower fuel costs. But I think a lot of it is the fact that the people who want to go and travel now are still healthy enough to do it, have, you know, service providers to help them through that and thankfully have the financial ability to do it. And you know, cruise ships are a service industry. So, you know, I think as you look around, it’s an indication like you said of a wealthier, healthier, happier society. I don’t think this is a bad thing.
Jason Hartman 22:44
You know, very, it’s, it’s an amazing time to be alive. Okay, so anything else you take from chart number two, manufacturing employment is dwindling, while more and more people provide services
Gary Pinkerton 22:58
now? I don’t think so. You know, there’s a, there’s a couple more that relate to that. And those are number 12 labor force participation rate. And then kind of lumped them together. And then like 15, you know, teen summer employment is and then both are, you know, are dropping off. And, you know, I think the labor force participation rate that’s somewhat to do with, you know, the the crash that we had in 2008, and nine and the one in 2000, both of them caused a significant drop. And clearly, we haven’t come back from that, but, but again, I think it’s about increased efficiency as well, right now, you know, in the industrial world, and I think people are struggling a little bit we have this impression that service jobs are lower income jobs, and their jobs that, you know, you know, are behind on beyond having to do that kind of a job. And I think that’s unfortunate. I think service jobs provide a great benefit, like we just talked about, and and I think if we could change the mentality on that and perhaps change the pay structure for that. Well,
Jason Hartman 23:57
I think one of the interesting things about that is You know, when you talk about service jobs, most people think of Oh, working in a restaurant or a coffee shop or something like that. They don’t pay very well, those jobs, certainly. But, you know, it’s not that we have have to just talk about this as though it’s two things. It’s either a service job or a manufacturing job. What about a corporate job? What about a management and middle management type of job? You know, the information worker, the people working in the offices, right? They don’t fall into either category, and those tend to be higher paying jobs, and they tend to be more pleasant jobs than manufacturing or service, I would say, you know, they’re using the brain more than the brawn In either case. Yeah, I agree. And, but, you know, regardless, chart 12 people have been dropping out of the labor force since about 2000 is a bit of a disturbing chart. You know, if you follow that arrow further, I wrote Greece at the end of you know, of that, that arrow where, you know, for whatever reason, the labor force, whether it be entitlement, whether it be disenfranchisement, whether it be Taxes are so high, they don’t bother. You know, that is the direction I think America is moving on this chart and the direction of Europe, where, for whatever reason, people don’t go to work. And that’s not a good thing. That’s very unfortunate. And, and folks, the labor force participation rate is far more accurate than the unemployment rate. Because as we’ve talked about, many, many times, and I’d say the guests that spoke to this the most was john Williams, the founder of shadow stats calm website, I would highly encourage all of you to visit shadow stats calm, which is, you know, sort of made its name on the, you know, the reality behind the numbers that the government is publishing. The labor force participation rate really shows you who’s working and who’s not right. Whereas the unemployment rate because people fall off the unemployment rolls. That is a very misleading number. So let’s just share some actual numbers here. Okay, in 19 Well, let’s take 1997 ish to 2000 It looks like we had a labor force participation rate of 67. And now it’s down to less than 63. And the last time it was this low was, you know, we’re in the era where the misery index was created in the 70s. In the mid 70s. Things were very, very tough back then, obviously. Yeah, it’s just interesting to look at this, isn’t it?
Gary Pinkerton 26:21
Yeah, it is certainly is. And hopefully we turn that trend. But the other thing to kind of keep in mind, and I learned this in, you know, in my master’s program, my engineering master’s program is you have to take charts with a grain of salt, meaning that you kind of need to know what’s behind them, like, you know, what the data set was, what the entering constraints were. But But the other part is that, you know, the scale on these things, you have to look at it and kind of evaluate it. I mean, this, this looks like a very dramatic scale. But I mean, a very dramatic curve. But if you look at it’s gone from 59 to 67%, which is substantial with a country this large, but it’s not like it. I mean, if you first look at anything, oh my gosh, we were at 10, we went to 100 and we’re back down to 50 or so. You know, it’s not But that’s one of the old how to lie with statistics things, you show someone a chart, and depending on the scale in which they did the chart, they can make it look much more dramatic than it really is. So that’s a very good point A to that are on real estate. Jason, I thought we ought to touch charts 18 and 19. Right back to back and 18 is the current recovery is an urban recovery. And it shows it breaks up the chart into four different groups, communities of less than 100,000, between 100 and 500,000, between 500 and a million and then over 1 million, and what it shows early 90s. The most of the growth was in the very low population areas. Hmm. You know, in 2000 2006, it was pretty flat and low across the board. But then now the trend from 2010 to 14 following the mortgage crisis, all of the growth has been, you know, in the larger cities.
Jason Hartman 27:52
Yeah, that’s, that’s interesting, you know, and this is a really complicated one to look at because one of the other issues that you have is some of these Actual cities have grown like growth begets growth, right? And so if you look at where I spent most of my adult life in Orange County, California, I remember when I first started selling real estate in Irvine, California, the population of that city was like 70,000. Okay, and, and those are misleading too, because the cities are contiguous, you know, they’re right next to each other and you go from one you go from Irvine, to Newport Beach to Irvine, to Santa Ana Irvine to Tustin or Mission Viejo or whatever, it’s like, you’re in the same place, you know, so, so some, some metro areas are isolated where there’s a distance between them, there’s a buffer of nothingness, if you will, and then there’s another metro area, right. But when they’re all clumped together, it really makes it hard to do statistics. But I would say I you know, and I don’t I haven’t kept up with it, but I guessing that the, the size of the urban population now is about 220,000, or something like that. So, and I could be wrong about that. By the way, maybe maybe under 200 I’m not sure. It’s interesting to look at this. Yeah. So this would would would lead one to believe that the the growth is in the cities, right? In the in the bigger wealth. This is county size, right? Yeah. Yeah. And, and, you know, if you look at it on County, like LA and Orange County are right next to each other, you know, you don’t notice when you go from one to the other, it’s there. They’re completely adjacent. So it’s hard to tell, but go ahead with what you’re saying.
Gary Pinkerton 29:25
Well, what I was gonna say is that, you know, this really speaks to the the logic behind what you do and your company, and that you pick areas that are surrounding major cities, where, you know, it’s it’s ruling up or outside the city enough that the numbers still work. But you’re close enough to the city to grasp this, you know, population and job growth. You know, people can still commute from where we’re buying properties around Atlanta, or you know, where I bought properties in St. Louis, or, you know, the other major cities that were concentrating on, they can still go into weather large growth is occurring for jobs.
Jason Hartman 30:03
Yeah, yeah. So they’ve still got the the the job opportunity without being in the inspect in the expensive market. And Gary, you know, I think this is like the ultimate formula. I don’t know how expensive it is where you live, but I know your property taxes are some of the highest in the country that I do know, in New Jersey, you know, when you can live in a place that offers a good economy, a good entrepreneurial environment, good entertainment options, good weather, and you can do that inexpensively. You know, I mean, look at the difference between like, and we were not doing anything in this market lately, because it just got too expensive. But relative to the comparison I’m going to make it’s incredibly cheap. And so I would compare Denver and Austin, right two cities that we’ve done a fair amount of business in both a little too expensive now to be recommending to our investors, but compare them to a place like say San Francisco, right. These are both called creative class cities. As is San Francisco is dramatically better values. And I just think that the Uber high priced cities are I don’t think they have as good a future is relatively speaking to the low price cities that have a lot of the same offerings, you know, and people are very mobile nowadays, as we’ve illustrated before, but you know, any thoughts on that?
Gary Pinkerton 31:23
No. And and, you know, over a million in a county is not a lot. Right. So this is not just York City. I think there’s great counties here that demonstrate again, that I just believe. I think you’re right, I think there’s a lot less opportunity in the super Uber rich, large cities. But I think this this chart speaks to, you know, the strategy that we’ve been using for many years with your company, I think it’s great.
Jason Hartman 31:47
Yeah, let’s talk about inflation adjusted housing prices.
Gary Pinkerton 31:52
I see. So what I did, Jason is I went back and looked at this and here’s a case of chart that includes tremendously more information. Right, so this one goes back to 1890. Most of them have been at 1980s or 1990s, maybe even 2000, very small sample size. This one is, you know, since they started recording this information 130 years ago, and I took inflation and adjusted it by 1% higher than they show here, and essentially this thing flattens out and the guy’s argument goes away. His argument is that, since you know, World War Two, the that housing prices have consistently climbed, and he even calls into question whether the 2008 2009 bubble was significant or not, I mean, you can even look on his chart and it was huge. So, that’s a kind of a weird argument to make. But, but even just, you know, his point is that you can see kind of an upward trend, but for that many years, you know, we’re looking at 70 years if you just add 1% to the reported inflation, it flattens this thing out completely.
Jason Hartman 32:52
Just a reminder, you’re listening to flashback Friday. Our new episodes are published every Monday and every Wednesday. I tell you I have a lot of disagreement with Robert Shiller. And this is, of course, the Yale economist. And the Case Shiller index is named after him. And he’s written several books. He talks about irrational exuberance. He took Alan Greenspan’s famous quote, and talks about that and he doesn’t really give the whole picture on a lot of things. And I think that can be kind of misleading some of his data is great, of course, but the thing that is so misleading about charts like this, is that it assumes that the house is the same house see the house in 1890 I’m just going to venture to guess I’m gonna make a wild guess here is not as nice as the house in 2010.
Gary Pinkerton 33:49
Right and by the benefit included the outhouses part of the house.
Jason Hartman 33:52
Yeah. Right, exactly. So it’s not as nice a house for sure. I mean that the houses today are much more energy efficient. Well, they even have energy. My grandmother in upstate New York rest her soul. But when she was alive, and I used to go visit there, I mean, all the wiring all the electrical wiring was on the outside of the walls, you know. So you would see wires running around the inside of the house to an outlet. And because the house was built before electricity was wired into homes, and so the homes are obviously much better. But here’s the kicker. And if you look at like one one stat I hear a lot is that you know, American Americans are just living much more prosperous lives nowadays. And they’ll say the average house built after world war two in the baby boom was about 900 square feet. And the average house today is like 2200 square feet. Okay. But you didn’t talk about the density of that house. You didn’t talk about the fact that that house post World War Two was that a third of an acre or a quarter acre lot in you know, famous suburban places like I’ll take Lakewood California, as an Example, which is a long beach area, Long Beach, California where I went to high school. You know, you compare that to today. And yes, you might have more square footage on the interior of your home. But you’re living in a townhome or a high density cluster home with zero lot lines. So there there’s more to everything than meets the eye, isn’t there?
Gary Pinkerton 35:19
Absolutely. there absolutely is. And I thought that was a fascinating one. And you certainly cannot discount the bubble that shows even on on this inflation adjusted chart, but but I believe that that consistent climb that it shows from the 1970s on ironically, if you add 1%, like I said to the inflation adjustment, it’ll flatten that out. And what I meant by ironically, is that that’s where we started messing with the consumer price index, right? That’s where we started taking out volatile things. Shadow stats will tell you that it’s a couple of percent higher than that and when you add that in, you know it’s flat. It’s just following home price inflation is long term with the exception of you know, the 2008 bubble there. It’s just fine. inflation.
Jason Hartman 36:01
Yeah, fascinating stuff. You know, I A long time ago and I wish I could find that episode I did an episode on this where I, I played part of an interview that was on I believe on Bloomberg News. Tom keen on the economy. He’s interesting. Reporter I really liked his stuff. And I actually played part of it on there where they interviewed the Fed chair, who was who was it? It was right before? Gotcha. It was no it was before Greenspan and it was before. You know, the guy that broke the back of inflation of I was talking about I can’t think of his name right now. Volcker, Paul Volcker. Thank you. Little senior moment there. It was before paul volcker. There was a Fed chair in there for just a couple of years. And he was talking about how they started manipulating the numbers and how they started using weightings substitution. hedonic ‘s all of the ways in which they understate inflation and that was that was fascinating. I got to find that one in plate as a flashback Friday episode because it’s it’s really interesting to hear it right Right there from the inside as to what went on, but that, yeah, good stuff. It’s an old one. It’s up there somewhere. But finding it is another another challenge. Okay, so do you want to talk about chart number 20 at all, Gary? Uh, I was housing prices have grown a lot faster than construction costs,
Gary Pinkerton 37:17
right. So one of the things I was going to do is say that this is a tribute to I’m not sure. Jason haven’t really talked about yet. things changing in your life, but it came to mind to me the turtles. And you’ve mentioned this before in the past that, you know, some have actual masses around them, like geography mountains and things that cause prices to rise. Water around New York City song, we just manufactured them, like one that came to mind for me was Las Vegas where they have famous, you know, they have endangered turtles that we’ve decided that will prevent you from, you know, expanding and so home prices go up and places like that as well.
Jason Hartman 37:54
Yeah, right. Right. So in other words, you’re talking about constraints on building right? That cost As housing prices to go up a lot faster than real construction costs.
Gary Pinkerton 38:03
Exactly, exactly. So that’s, that’s one huge part about this, I believe.
Jason Hartman 38:06
Yeah, yeah. And and this is something by the way, just to tell the listeners, what this chart shows is it shows from 1980 to 2012. And you see during the bubble period, you know, 2004 to 2006. Ish, or while the run up started happening in 2000. But you see that house prices, real house prices adjusted for fake inflation statistics, so everything’s got a, you got adjusted price, right. But they went up dramatically faster than construction cost, right. And that’s what this chart shows, which is quite interesting. But that doesn’t tell the whole story. And I think that’s Gary’s point. You know, correct me if I’m wrong, Gary, but in places where you have constraints on construction, that’s what causes places like the Socialist Republic of California to have these incredibly high prices and my opinion that I’ve stated many times before, when I talk about the self driving car and the how geography is less meaningful than it’s ever been in human history, it’s still meaningful, it’s just less meaningful. I think this kind of thing will be under attack. It’ll still be there, it’ll still be a factor. Of course, everybody would rather have a home on the water in Newport Beach or La Jolla or wherever then England have it right. But I think that’ll pretty much be unanimous. But will the will the Delta be as large as it is today if transportation becomes a lot cheaper and a lot easier self driving, ride sharing etc. and and also technology like virtual reality, then that’s a that’s another component. You know, I believe that delta will will compress now I think you’re right, but this is a nice chart when you’re talking about the the concept of land value and, you know and cost of construction. It shows that those The laminate blue line, the real housing prices, essentially the changes in land value, right? I mean, you know, the people that will pay a premium for a specific location over what it costs to build on that location, right. But here’s, here’s the amazing thing about this chart, though that point is well taken until you get to the peak in, you know, according to this chart, it would be about 2006 or seven. I think it was really before that. But there’s always a lag in these stats anyway. And then you see the dramatic fall of real housing prices. But you see real construction costs increase during that same period, the red line versus the blue line. And I almost wish the listeners could see this, this is really telling. So you see that land prices, when there’s a bubble, just get this massive run up, and they’re, they’re artificial. It’s just built on a tulip bulb mania, you know, it’s built on a mob mentality of scarcity mentality that doesn’t Have any real intrinsic value? And this is why the Hartman risk evaluator i think is a very valuable lesson here, it took me 19 years to discover is that you should be investing in low land value markets because you don’t have that type of volatility. Isn’t that Isn’t that fascinating how you see the blue line dropped sharply and the red line continues to go up?
Gary Pinkerton 41:24
Right, right. It absolutely is. And it kind of drives it home. It’s such a visual chart. You know, it’s something to remember, I think, when you start looking at different areas to invest. Yeah,
Jason Hartman 41:31
that’s amazing. That’s amazing. Any others you want to share before we wrap it up, Gary?
Gary Pinkerton 41:35
Yeah, so 2424 is one that shows the way Americans retire is changing. And this one is not really probably news to most people, but it shows the difference between the percentage of Americans that are covered by defined contribution plans or you know, 401k IRAs, self funded, if you will, and then those that are covered by defined benefit, which is just a pension. system and this, this chart is really one of those things that I’m kind of dedicating my, you know, the next part of my next chapter of my life towards and with Patrick Donahoe paradigm life is trying to get people in a position where they don’t fall victim to this, because this is a tragic, you know, occurrence. And you can see that it’s been happening since we started, you know, since we made that shift in the late 70s, early 1980s. And it’s just getting worse and worse. And there’s a comment at the bottom, he says that, you know, this shifts a lot more risk and responsibility on to the employees. So back, you know, with a pension system, which is really just an annuity, that company would outsource to someone like an insurance company, the commitment to pay income to their previous employees in retirement for the rest of their life, and so that that individual had quite a bit of security there. But it became expensive to the companies and they found an opportunity they found that the Congress would allow or that the government’s would allow them to shift this over to the employee. And so I would argue that it doesn’t shift more risk. I think it’s just all the risk to the individual because, you know, recent studies, you know, in 2015, there were a couple really big studies that showed that and he talks about it in here as well. But now that actually goes over to the next chart. The median family has just $5,000 saved for retirement and those Wow, that is that is so scary. Yeah, it is just mind boggling when I hear those studies about how the average person in America has this. And I don’t know the amount but this tiny little amount of money in their in their bank account. It is just shocking. But you know what it means? It means they’re going to be renters for a long, long time. So you know, I find that to be, you know, pretty rough, pretty, pretty harsh statement about how many people are going to be completely beholden on the US security system. No less than 10% of the people right now that are over the age of 55 have more than 130,000 saved and 130,000 with today’s interest rates, if you’re planning to use you know, Spend down of your retirement money is just a couple hundred dollars, you know, a month. So it’s not a good plan. And it’s something that’s going to result in people, as we said, being really beholden on social security and also working probably longer than they originally plan.
Jason Hartman 44:14
Yeah, yeah. But you know, I mean, it’s terrible. That sounds and I agree with everything you’ve said. I don’t know that working longer is a terrible thing, either, though, you know, I mean, the concept of a 65 year old retiring, that really needs to be redone. Now, granted, you know, that’s a sign of how things aren’t going as well as they should be. Right. I agree with that part. But also, I just think in general, as I’ve said many times before, working is good for you. You know, it’s good to be a productive member of society. It’ll make you live longer, you’ll you’ll be healthier. And and you know, you should work longer I mean, you can Yeah, when when the when the arbitrary 65 number was created on average. I think they said, and Gary, you’ll know this better than I will, as your next career. I’m sure you’ve studied this a lot. But you know, people lived about four years in retirement, right? They live to 69. Now they live 20 years, 30 years. And, and that means we got a plan for that we got to invest for that, for sure. But also, you know, I think working is good for you.
Gary Pinkerton 45:21
I agree completely. I think most people should Well, all of America should reevaluate what we think of as retirement. And I think perhaps retirement is maybe a change in lifestyle, if you want to transition into, you know, a little bit more travel or, you know, I mean, to everyone, it’s different. But I think, you know, this process of today, you know, baby boomers have the ability, and many of them have done this, you know, the first 20 years of their lives has been consumed as obviously being a child and learning, going through education. You work for 30 years, and then in your mid 50s, you have a mass enough and have the ability to retire. And if you retire after 30 years of work,
Jason Hartman 45:58
that’s if you’ve done it right Right, you know, and it’s semi right. Hopefully that even sooner but yeah,
Gary Pinkerton 46:03
right. So 20 years not working 30 years working and the ability to do another 30 or 40 not working, if, you know, the advances in health care continue, that that’s just not a survivable model for our society, you know, to contribute for 30 and not contribute for 50 or 60. Plus, it’s just hard on the individual, like you said, you know, that, that the people who live really long lives in general, I think the studies will show are very active, right, you know, and both physically and mentally,
Jason Hartman 46:26
their their work, they’re always working on a project, you know, they’ve always got something going on. And I think that’s very, very good and very stimulating. So folks, look at if you’re listening to this, and you’re thinking you’re at retirement age, and you’re complaining about how bad things are, because you, you know, you have to keep your job as a greeter at Walmart. Quit complaining, No, I’m just kidding. I doubt any of our listeners are greeters at Walmart. But it’s, it’s good to work. I think that is just good for you. Maybe it’s part time hopefully it’s freelance type work where you can make your own hours and you know, you can take a month off here and there if you want, but people should be working a good year 10 years longer and by choice not by necessity just by choice, because they they want to be engaged and involved. So yeah, good stuff. Good stuff. Did you want to talk about any others before we wrap it up? There’s some amazing charts here.
Gary Pinkerton 47:18
Now, I think those are the highlights, you know, those that certainly covered, you know, the major trends, and I would say personal economics and real estate and, you know, the job market and, you know, I think they’re, as we said earlier on, there are some things that can sway studies like this, you know, he cobbled together some amazing charts from many different studies and locations and, and so it’s a challenge for him to put them all into one article. But I think if it told a great story, you know, and I think it’s a eye opening story on a lot of these charts,
Jason Hartman 47:49
it really is it really is Gary, give out your website.
Gary Pinkerton 47:51
So my the best website to find me is paradigm life dotnet backslash about and then backslash Gary Pinkerton and I just wrote an E book there. cover some of these topics and I’d love to pass that to anyone who would find abuse. Is that ebook available. There it is, sir.
Jason Hartman 48:06
Okay, fantastic. Gary Pinkerton client, venture Alliance member and former submarine captain and hack economist. How’s that? Focus on hacker economist. Yeah, absolutely. That was a very interesting discussion. Thank you for joining us today and we appreciate your business and appreciate having you on the show.
Gary Pinkerton 48:23
Thank you. It’s a pleasure.
Jason Hartman 48:26
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