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Hey ,
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I do not believe we will see low interest rates again as investors this year...or next...and Jamie Dimon, the CEO of Chase Bank, agrees…
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Inside the Trenches
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Jamie Dimon recently wrote in his annual letter to shareholders that he believes inflation and interest rates will stay higher, even possibly going up to 8%, despite all the optimism out there. The BBC recently did a summary of Jamie Dimon's statements — you can read it here.
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One reason it is believed that the FED will not be cutting back rates is due to "persistent inflationary pressures" and in Jamie's letter he wrote:
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"All of the following factors appear to be inflationary: ongoing fiscal spending, remilitarization of the world, restructuring of global trade, capital needs of the new green economy, and possibly higher energy costs..."
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| Jamie Dimon |
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Take in the fact that the US Government is busting at the seams with debt and deficits…
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The federal government has so far spent $855 billion more than it has collected in the 2024 fiscal year. For fiscal 2023, the government’s deficit spending came in at $1.7 trillion.
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| Source |
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That’s TRILLON, with a “T”…
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I agree with Jamie Dimon's position on this.
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I also hope, for all our sakes, that the FED does NOT CUT RATES.
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I have written about this before and I have spoken about this on numerous podcasts and webinars — if the FED cuts rates down dramatically and it brings our lending costs back down to 3-4%...then we are going to create a massive asset bubble, worse than we have seen before.
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It’s so easy as real estate investors to get sucked into low interest rates and raising values of our properties, and then miss the long term broader risk factors of such things.
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I think we have learned a few things since 2020 (and 2008 for that matter):
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Shutting down the entire economy for any period of time is probably not good for inflation, jobs, US Debt, etc. (simplified statement of mine, I know...I just don’t want to write a 30 page newsletter).
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Really low interest rates DO spike up an economy and increase consumer spending.
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Really low interest rates ALSO hyper inflate asset prices, like real estate.
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Really low interest rates create a ton of debt and a TON of inflation(again, simplified).
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When you flood a market with debt and currency, prices rise for many reasons… this is a very basic econ 101 sort of thing.
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Apparently, we all forget basic economics and live short-sighted — then we’re surprised when inflation spikes and we have to step on the brakes by dramatically increasing rates.
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Sure, reducing rates right now will help a lot of us increase values in our properties, get cheaper debt so we can have more cash flow and/or keep more properties, “save” some of those aggressive multi-family syndicators from losing their properties, etc.
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BUT it will also start the cycle all over again —
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Making expensive real estate (single family houses are at an all time high) even more expensive…
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Pricing out the middle class even more from the market…
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Creating another spending surge…
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Flooding the market with more dollars…
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Increasing inflation…
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Leaving us with a nice large asset bubble ready to pop and take us all down...its simple economics with this.
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Remember:
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Properties are NOT supposed to appreciate 10-20% in a year, EVER. That's not normal…
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Historically, mortgage debt is NOT supposed to be 2-4%…
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Single family homes are not supposed to be unobtainable for the future generation in this country…
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Majority of people do not have financial education, so when they take out low debt, they SPEND ALL OF IT (whereas we real estate investors leverage debt).
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This makes it far worse for them in the long run…
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And in my opinion...compounding and widening the gap of the have and have-nots, and over time destroying the middle class.
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It's easy to want the easy button and cheap debt when in real estate. That is why real estate investing is not for everyone. Relying on cheap debt to make real estate work for you means you have a lot more to learn about properly investing in real estate.
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It's not supposed to be easy. It's investing.
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Announcements
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Ken McElroy and I are bringing a TON of experts on this very subject to Dallas in August. This is a very hot topic right now, as well as for the future of our economy as a whole.
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YOU MAKE MONEY IN TIMES OF DISRUPTION.
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Hiding under a rock or playing pure defense during times of disruption is not how you take advantage of the situation. Lean in to what is happening and figure out how to better you and your family’s financial positions.
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We cannot change what is currently happening — there will be a wider gap of the have and have-not's, whether we like it or not…
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It's what you do with this current situation that will help determine if you have or have-not. I don't plan on being a have-not, complaining about the world, and what “should” be…
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Join Ken and I this August 29-31st in Dallas at the Limitless Expo. Find and meet more people who are doing something about this, and making the most of this disruption.
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Talk soon,
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Tarl
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