Epic Real Estate Investing - A Financial Crisis Like We've Never Seen | Paul Daneshrad | 1299

Episode Date: April 18, 2024

Join host Matt and seasoned real estate expert Paul Daneshrad as they unravel the complexities of the impending financial crisis and its profound impact on the real estate market. With over 35 years of experience under his belt, Paul offers invaluable insights into the current landscape, shedding light on the stark contrast between the stable single-family home market and the tumultuous commercial real estate sector. Discover the key factors driving this disparity, from interest rates to the work-from-home trend, as Matt and Paul dissect the looming challenges facing investors. Gain foresight into the office market collapse and learn why prudent preparation is paramount in navigating the stormy seas ahead. Paul's sage advice on financial preparedness, strategic investing, and avoiding over-leveraging in income-producing real estate serves as a beacon of wisdom in uncertain times. Don't miss out on this illuminating conversation that transcends the realm of real estate, offering profound insights into broader economic implications and the imperative need for readiness in the face of unprecedented crisis. Tune in now and equip yourself with the knowledge to thrive amidst uncertainty! P.S. Whenever you're ready to go deeper and further with your real estate investing, looking into my partner program to help you get your first deal might be the move... take the first step here for free 👉 https://epicearnwhileyoulearn.com/ Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. We see on average about 10,000 ads a week to consume. So we're constantly programmed to consume. And we've got to stop. Now is the time to be thoughtful and save and invest. Save and invest. That's what's going to save you. Hey, strap in.

It's time for the epic real estate investing show. We'll be your guides as we navigate the housing market, the landscape of creative financing strategies and everything you need to swap that office chair for a beach chair. If you're looking for some one-on-one help, meet us at rei-aise.com. Let's go, let's go, let's go, let's go, let's go, let's go, let's go. Let's go. Welcome to the epic real estate investing show. I'm joined today by Mr. Paul Danishrad, and we're going to be talking about a financial crisis like we've never seen and how you can survive it.

Paul, welcome to the show. Matt, thanks for having me. It's a pleasure. Yeah, no, it's nice. I'm glad we're able to connect. I'm very interested in this subject. I've been talking a lot here on the channel on how I think real estate is going to be. I think it's the best thing you could be in it for the next 10 years.

If you look at the traditional metrics of just supply and demand and how that's working. But I can't ignore what's going on globally. And if you browse around YouTube, there's been a slew of videos about this economic collapse that's coming, really revolving around around the banks and everything like that. So there's a lot that I don't know that I don't know about this. And we were talking earlier, and you know, we were saying there's a lot of to look at this from a macro view. And so that's why I'm really glad you're hearing. I just kind of want to, I guess we could start by, you can share just a little bit about your background.

And let's jump right into what you see the big potential coming to the economy, the market, real estate, all that together. Sure, happy. So my background sort of lived in Los Angeles for the last 50 plus years. And got a family, four kids, wife, and married for about 30 years. started a small real estate firm right out of school about 35 years ago. And really, when I say small, literally out of my sister's garage, and sort of built that by brick over the last 30 years into what it is today. And it's a real estate, what we call asymmetrical business.

It's an income-producing real estate where we try to get higher returns by being very selective in asset class and geographies to reduce risk. What's what we talk about. And the real estate business that we run about a billion dollars and while regionally across the loss. Congratulations. Awesome. Thanks.

So you've been doing that for, you say, what, 20 years or so? 30 years. 30 years. Very good. Cool. All right. So I guess kind of describe how you see the market as it is right now and then we'll dive into where we think it might be going.

So when you say market, do you mean the real estate? Do you mean the real estate market, economics, the stock market? I could just jump in and say yes, right? I know my audience is very much into the real estate and they've taken on it, whether it's a part-time or a full-time job. So they want to kind of know about the future. So let's start there and then let's what we could kind of broaden out of how the other sectors could be impacting it.

Is that true? It makes sense. Yeah, absolutely. The real estate market, as many know, we're in the next cycle. down cycle with seeing about of 15 to 25% reduction in values over the last two years. Can I pause right then? Yeah. Because I know that's what most people think, right?

And there's a lot of indicators that will say that. But if we look at the, what's the counter argument when you look at the median price of a house is up 6% year over year right? So when I talk about real estate, I talk about it in the broadest. sense, right? So including income producing, commercial, residential. Fair enough. The single family non-income producing, right? The single family market, as the term goes, right? People can buy and own homes to live in. That's when I refer to as single family. That market is relatively stable and probably up. And you're accurate.

Yes, absolutely. So homes, To live in, or say again, to just repeat, that single family market is healthy and definitely more stable. The commercial side of the business or the income producing side of the business, that's down about 20 years. Got it. Didn't mean interrupt you, all but then steal your flow there. No, no, no. Okay. Happy for the good clarification points.

Yeah, so it's the income producing side of the real estate that, or income producing real estate that's down, heavily influenced by interest rates, the increase we've seen in interest. rates heavily influenced by inflation. And it's also why, I think what you mentioned, it's also why we're seeing so much pressure on the regional banks and why we've seen see default in the regional banks because their real estate exposure mainly to commercial real estate, not some of the family. And I think that pressure is going to continue. I think we're going to see another five, maybe 10% reduction in commercial real estate values

in the next 12 months, while single family would probably continue to stay stable and not see much of an impact. So when you say commercial, are we talking about just real estate where businesses operate from? Are you talking about multifamily as well? In the broadest sense, yeah. So when I say income producing or commercial, I just lump all income producing into that, right? Retail, office, industrial, multifamily, self-storage, just really at the,

macro level. Got it. Okay. Very good. That's where the real estate market is, right? So you have a prediction. I hope you brought your crystal ball for me today. Yeah, absolutely.

Yeah, we're going to see another 5% to 10% reduction in commercial real estate. Single family is going to be stable. And also, I think this is a buying opportunity. It's the Warren Buffett philosophy by value, buy when there's been a reduction in prices. as long as the fundamentals are strong, that's a great time to buy. Buy the bottom of the market, not at the top. Buy when people are scared.

I know you want to say it. I know you want to say blood in the streets. Yeah, the streets. Exactly. Is there blood, though? Is there blood in the office market, for sure? There's blood. This is a generational, probably 100-year event in the office market.

Now, I'm not recommending anyone to go out of Russian to buy office. is the fundamentals really strong. I go back, you know, Buffett's a mentor of mine. I quote him in my book. I quote him all the time. I think he's one of not only the wisest investors, but just his track record is speaks for itself, right? Yeah, it's a lot of five-year track record.

It's on a 20-year track record. Talking about a 40-year track record, right? So he's definitely someone that we can all learn from. And what he says about, you know, making an investment is, yeah, you want good value, but you also want good fundamentals. That's the right time to invest. There's value and good.

The office market where there's great values right now, the fundamentals are questionable. So that's the problem. But yes, there is blood in the streets in certain sectors. Okay. So in hindsight, we can look back at 2008, 9, 10, and we can become really clear on how the residential market collapsed. We can see the bad lending practices.

We can see the balloon stuff. we can see that we are overbuilt. So right now in the commercial sector, and I have some general ideas, and I think everybody has a general idea of what has gotten into here. But from your perspective, your expert opinion,

what has gotten into this point where we're at this 100-year event in the commercial sector? Not commercial, it's just office. Office. Yeah. Retail, industrial, multi-family, a lot of the other asset types

or asset classes are much more stable. Office, we've just seen real collapse. and that's a combination of less demand and oversupply. A work from home phenomenon coming out of COVID has just created about 20 to 30% reduction in demand. And then we had a sector that was oversupplied. And those are two bad combos. And that's really hit the office market card. Okay.

So that's what the news says, right? It says the work from home rage or trade. trend. So that's real, I guess. It's tough for me to do in the news now. I don't, I question everything what they ever say. So they say, you know, oh, yeah, everybody wants to work from home. I was like, well, my whole company is working from the office. So I don't know anybody that's working from home right now. So I don't have that perspective. So that's real is what you're saying. That is real. Great. But then you also hear that the major corporations and major CEOs are calling everybody back to work. Is that true? Yeah, it's a reversal of the trend. Okay.

Right. It depends on which stat you look at, but there was about 40% of the country that was working from home either full-time or part-time, and part-time could even mean once a week. And that's now down to about 30% trending to 25. So there is a trend reversal here. And that reason for that is, you know, most corporations, CEOs and management leaders are realizing there's a loss of, efficiency, there's a loss of productivity, there's a loss of culture when people work from home. And so they're trying to find that right balance. And so the industry and the country is still trying to figure that out. Got it. So while we're waiting for them to figure that out, the good portion of the office space remains vacant. And you said that we could probably expect another 5 to 10% decrease there. Yeah. So do you wait or is there an opportunity right now? We're waiting. We're dormant right now because, again, we expect another 10% on the top end of reduction in pricing. If you have another 10% loss of value, that's going to equate to almost a 25, maybe 30% loss of equity, right?

So not the ideal time to go out and buy today. I would say if someone waits in whether six to nine months, it might be on the time the bottom market better capture that additional. value proposition. So I would say, wait, sometime the end of this year feels right to me as a time to start to look at buying. And one of the crazy things about today's market is so much is influenced by the Fed. The Fed is just a force. And it shouldn't be such a force in private markets or the public markets, but it is. I mean, you can just sit there and turn. on CNBC in the morning and the stock market's up 150 points or down 300 points. You know, I'm talking about last week or the week before, completely based on what they think

the Fed's going to do. If they think the Fed's going to reduce rates, right, stock markets just following that, right? Don't fight the Fed theory and putting money to work. If they think the Fed's not going to reduce rates, right, because the inflation numbers come out and they look still too high and people think the Fed's going to cause on rate reductions and it's going to be delayed. You know, all of a sudden the stock market's responding to a lot and reducing it. So they just have an enormous amount of influence right now and they shouldn't, but they do.

And so you do have to factor that. And so one of the reasons I say why the end of next year, I don't think the Fed's going to have major reductions. People were pricing in three to six rate reductions. this year, well, now it's zero to three rate reductions this year. And so I really think it's not going to be until 2025 until the Fed really starts reducing rates in a significant way. And that should lift the real estate market.

We should see values start to come back, improve. Well, good. I just said that in my latest video. So there you go. And said the same thing. Data validation there. Yes. No, I love that.

You can tell all the trolls in my YouTube comments that I was accurate. They don't believe. So this recovery, is it going to be solely from people returning to the office? Or there's murmurs and a lot of speculation and hypothesis of how a lot of this vacant square footage could be repurposed into something else. Yeah, that's more theory than practice, real practice. You know, everyone's talking about trying to repurpose 100 million. square feet of office space into residential. I'd say 80% of that office space can't be converted to residential because of either

configuration, non-operable windows, it's cost prohibitive, it's not in the right locations. There's a lot of functional and economic barriers to converting a lot of those buildings. So some of them will be converted, most of them won't. and no one's figured out what to do with a lot of those older buildings. So the office market, I think, is going to take 10 years to recover and find balance. And it will find balance, right? Because the supply is now completely constrained. Most markets were seeing zero supply, some of the better markets.

We've got a little trickle of supply. So that lack of supply over the next 10 years is going to put the market back in the business. balance, but it's going to take that amount of time. The rest of the sectors, multifamily, retail, industrial, all relatively stable, and I expect them to really rebound in 25, 26. Yeah, I totally see that as well. I think, you know, as they say, the rising tide lifts all boats. Yeah. I say when it comes to a residential, you want to get as many boats in the water as you possibly can right now. You might get control of them in some way. I mean, responsibly, of course, don't over leverage or extend yourself, but I think it's only going to go up.

Yeah. You agree? Yeah, I do agree. I think the residential market, there's an enormous amount of demand. Supply in most markets is in check. And when this interest rates drop, values are going to increase, that's a great place to invest in the next six to 24 months. Nice.

I got something else I'm going to come back to in a second. But based off just since we're here, because it's funny how very few people argue with the concept of supply and demand when you're talking about Pokemon cards, You're talking about toilet paper, right? But it seems like that doesn't resonate with people as strongly when you're talking about real estate, the supply demand thing. And maybe it's just in my world that I get the pushback and the resistance. But I'm looking at it and I don't haven't really heard anybody else say it the way that I say it and the way that I see it.

And I want to kind of get confirmation from it as many people's possible as I'm on track because I'm making some big moves based on what I'm thinking. So if we look at the huge deficit over the last 10 years, talking about residential, deficit in the building in the last 10 years. I think the exact numbers were 276,000 units short every year for the last decade. Then we were on track for the previous 50 years. So we have to build 2.1 million new properties for the next decade just to catch up to be normal. So I see a huge deficit in the supply for a very long time. Then when it comes to demand, what's significant about the demand is the age of the people. Because the peak of the millennials, our biggest population, I believe is right around 31, 32 years old. The average age of the first time homebuyer

is 36. So over the next three, four, five, six, seven years, I see it as we're going to have more demand for housing than we've ever had in the history of this country. Does that logic makes sense? I'm not going to count the 2.3 million people that just came over the southern border last year. I'm just talking about the people that are already here. Does that make sense that going to have this pig going through the garden hose? You know what I mean? Yeah, yeah. Look, if you look at any demographic analysis and you can, you know, McKinsey's got a good one, J.P. Morgan's got a good one. There's dozens out there. It is pretty universal when you look at any of these demographic studies and those translate to housing demand that we're short on housing

at all levels, whether it's low-income housing apartments or it's just the housing stock in general, including for sale. So it's a content discussion. and the demographics, to your point, do support all of that demand side. Now, supply is a regional issue. It's not a national issue. What I mean by that is you can have places in the country where we are over-supply in housing, where on a national basis, we're under-supplied. So supply is a regional concern, and you need to look at that metric locally, not national.

So as long as you do that, then you can really bring the right construct to this discussion. But yes, we need more housing. That lack of supply is going to put upward pressure on prices, continues to do so. And so it's a good place to be demographic support it. So Matt, I completely agree with your supply and demand is absolutely important. I think if you went out and surveyed 100 sophisticated, institutional level real estate executives or investors, 100. 99 M.O. would say absolutely supply and demand

regionally is very important and they look at it. It's only the one fool out of 100 that would not look at supply and demand. And so it doesn't happen. Well, they're all under my videos on TikTok, all that 1%. Well, I will tell you, whoever they are. If you looked at their resume, they're not sophisticated. Data analytical. Are you telling me Tintock wax sophistication? News break. We'll be back with more right after this. Stop spending countless hours on busy work and focus on growing your real estate business

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Amazon gift card. Sign up for free, no monthly fees. That's baselaine.com slash Matt. Baselan.com slash Matt. That's B-A-S-E-L-A-N-E dot com slash M-A-T-T. Hope is not a financial strategy. Let's get back to work. All right, so back to the office market. So repurposing is really kind of out of the question. One of the biggest things, and you talked about is just cost prohibitive, but plumbing, right? You just don't have plumbing in the walls to turn office space into residential.

So the repurpose thing is like you said, it's very theoretical, probably off the table as far as to contribute to the recovery. So we're talking about just people are going to return back to the office space. That's what's going to bring the recovery. Is that what you're saying? The older product's functionally obsolete and no one's going to want an office there. Even some of the newer product that's in the wrong geographies, right? Some of the downtown core, people don't want to live and work there anymore. And so they're becoming a little bit not only functionally obsolete but geographically obsolete.

So those buildings really nobody knows what to do with. And I think it's going to require both local, state, and national responses to this. And what I mean by local state national, the governments are going to have to get involved, provide some type of subsidies, so that these buildles can be repurposed or torn down, and they don't turn into ghost towers.

Is there any factoring of increased productivity through technology, AI is one thing that I think about and that will bring up. But is there any of that factored into what the house that, what the office market is going to look like. Yeah, there's a lot of talk about how many jobs does AI create versus how many jobs does it destroy? Are we going to have robots doing a lot of the work? I don't have a strong opinion there. It's sort of outside of my core competency and experience.

But I don't see AI as a force to the office recovery. Now, interesting enough, the only demand we're seeing an office space, right now in San Francisco. And San Francisco is one of the worst office markets in the country today, San Francisco in New York. But the only demand we're seeing is for office space in San Francisco today is from AI companies who are hiring at a blistering rate. I think the last stat I saw coming out of Kostar was that 60% of all new office leases in San Francisco were from AI companies.

So that off-mast market is definitely getting some support. on AI. But that's San Francisco, heavily tech-centered by the west of the country, is not going to get that benefit from AI, at least as it relates to the office market. Now, the office market is going to take 10 years. There's no easy fix. There's no easy solution. No one's going to just flip a switch. And the office market's got about a 20% vacancy rate right now. No one's going to flip a switch and fill up that 20% in the next 24 months. It's just not going to out. All right. Well,

I've satisfied all of my curiosity and my questions in the realm of where I operate from. What did I miss or what else can you share that everyone should be paying attention to on how it might affect their real estate investments? The biggest factor of what I'm really worried about and I've been talking a lot about, I just wrote a book on it. It's called Money and Morads is our debt issues. We are a nation both privately and publicly addicted to debt. It's become like heroin and we can't get off. And this is going to end badly.

It's going to end in crisis if we don't fix it. And our current path is one where we don't have any easy solutions anymore. You know, the bigger the problem, the more difficult the solution. And our problem is big now. Past the 100% debt to GDP, which is a critical metric by all standards, Some of the leading thinkers on this when it comes to national or sovereign debt are two economists, Reinhardt and Ruggap, and they wrote the leading research paper and published book on this topic. And that hundreds of percent of debt GDP and their research has shown is a critical threshold and we've now passed it.

And we're now on a trajectory to hit 150 percent of debt to GDP within the next 10 or so years. whose debt are you talking about is greater the GDP? The government's debt. Government's debt. Okay, got it. Our national debt. Some people call it public debt. Some people call it government dead.

I'll just call it public debt. We're on a trajectory. You hit 200% debt to GDP in the future years. And that's not sustainable. That leads to crisis. That's the whole moronic part of this. And it's truly moronic, right? Like when you see a problem,

What percentage of Americans think the debt, the national debt, government debt is a problem? What would you guess? I would say it's small because I don't think most people even think about or even aware of it. So in recent polls, 83% of Americans think the debt is a problem, right? Big number. And I'm surprised too by that, right? I'm like, whoa. So they're aware of the issue, right?

Right. I didn't think anyone was aware. Exactly. Yeah. So they're aware of the issue. And 82% are worried about it, but they're not voting to fix it. No one wants higher taxes. No one wants to cut services or entitlements.

And so if you know it's a problem and you're worried about it, but you don't want to correct it because it takes sacrifice, well, it's for me, the definition of moronic, because you're going to pay for it. But you're going to pay for it through crisis. We all know, and you mentioned it earlier, right? You're advising your audience, make investments, This is a time to invest, but don't over leverage yourself, right?

I think if you ask eight out of ten of your audience is too much leverage, too much debt add, and all are going to say yes. Well, that still applies to governments too. There's no difference. Just add on debt and keep adding on debt. Eventually, something is going to break down. And so that's my greatest concern, right, is that we've got a structural debt problem. problem. And we keep adding on top of it, both as the public voter is not going to fix it. That's who has to fix this problem. We can't just say to the politicians, why aren't you fixing this? They need a mandate. They need a mandate from us that says, yes, I'm putting you, I'm voting through you now. So you go fix this, even though that it's going to require me to make a sacrifice in some form of fashion. No one's doing it.

If you go out and try to get elected today under a platform that I'm going to raise taxes and I'm going to lower services and you might not get Social Security, you're not going to get elected. So history has shown and data is so clear here that nations end up defaulting in some form or fashion when they have too much debt. That debt is going to create a crisis and that crisis is most likely going to be going to. show up and I want to stress, most likely, in inflation and higher interest. And that's going to have a significant impact on everybody, including real estate investors. We've already seen what inflation is doing in this current environment. The debt that's unsustainable is going to continue that pressure. So the title of our episode today was a financial crisis like we've never seen, which is what you just described.

Part two of that was how do you survive? Yeah. So what are the moves that the everyday person can make? Yeah, and that's the real thesis of my book, which is why making money is more important today than ever because this crisis is coming. You know, everyone wants to ask me to when is it coming? I'm not that smart. No one is. It's probably sometime in the next five to 15 years.

that that's my best estimate. But that time is an ally, right? That time is actually really valuable because it allows us to prepare. The worst thing we can do is have a crisis that's six months away and there's nothing we can do about to fix the crisis and there's no time to prepare. So the question is, are people going to take that time that we do have and prepare for it? And what is preparing mean? Yeah, you want to invest and you want to invest wisely and start.

building second and third sources of income passive. You don't want to over leverage. You want to really work hard and build up savings. Take that savings and invest it, especially in areas where it's protected from inflation. Real estate's a great. Historically has been a great protector. A great place to invest against inflation. And so if I could make one recommendation to the country is save more and invest. Save and invest. Save and invest. Stop trying to buy that next product bag

or the next Gucci bag. Consumerism in our country has become a disease. We see on average about 10,000 ads a week to consume. So we're constantly programmed to consume. And we've got to stop. Now is the time to be thoughtful and save and invest, save and invest. That's what's going to save you.

If you go into the crisis without passive income and multiple sources of income and savings and investments, the crisis is going to be horrible. The end for when they would decide that 15 years is the timeframe and that's when the crisis comes to a head and that's where shit hits the fan. And you say it's through inflation

is through high interest rates, and you're losing the value of your money. Because right now, I'm kind of hearing contradictory approaches, saving money and investing. It seems like inflation would support one and kill the other. Am I missing something there? Well, you can't invest unless you save.

Well, okay, so let's take it a step further. So I look at inflation, is it from all my belief is? It's an equal opportunity money destroyer. And so it destroys the money that you borrow as much as it destroys the money that you save. So the philosophy of my theory is to take a depreciating asset to invest it in and appreciating one. And so if the hope comes to a collapse and I own this real estate, but now my debt just became zero. Is it going to work that way?

Is there going to be something else that happens? How does your debt become zero? Well, I mean, if I took the debt 10 years ago, now I got making all of this money and inflated dollars, to pay this old debt that's far less, as far as the real value goes, as far, far less. Here's the issue. Yes. You want to invest in productive assets. What's a productive asset? Productive asset is income generating. Most income generating assets or productive assets, as I call them, they're inflating assets. Their values are going to increase. Real estate being one of the best. So you want to get out of deflationary assets into assets that are going to inflate or increase in value.

And that's one way you fight inflation. If inflation is growing at 3 or 4% a year, but your assets are growing at 8% a year, you're going to be in great shape. The one thing that worries me about debt and too much of it is in real estate, we have to turn our debt over. Now, if you're at a single family home, you probably have a fixed rate, and you've probably got to fix for 10 years, right? And in 10 years, either you're going to refinance that or it's going to move to an adjustment. When the crisis comes and the data on this is pretty clear, we don't fix the problem. We're not on a path to right now fix it. This crisis is going to fix the problem for us, right?

So that means we're going to be in a high inflationary environment and interest rates are going to skyrocket. So, you know, if you had a 3% or 4% fixed rate loan, and then now that's going to be 12%, that's really destructive. Right. So it's the turnover of the debt that worries me right in the middle or the starting part of the crisis. So if you have fixed rate debt and you can work through the crisis, then you're going to be great shape. but floating rate debt that has to be turned over is going to be a really big challenge, especially if you're highly leveraged or highly leveraged.

And that's the one thing that worries me. Got it. Yeah, it's apparent that I'm very much into the residential real estate and you're very much in this bigger commercial type real estate environment because I don't even know in the last 10 years how many adjustable rate loans have been given to just regular single family type investments. Very few.

Most of them are all long-term debt. They learned their lesson from 2007, 2008, 2009, and it's probably the best book of business that banks have written on that residential side. So I'm looking at it as taking this depreciating assets that you have a fixed rate at 3, 4, 5%. And if we head to crisis and we inflate to even just 8%, which we got to during COVID,

but if it goes 10, 15%, I mean, that debt is as much of an asset as the asset that you're controlling from the debt. Yeah, very true. Look, if you've got long-term fixed-rate financing at low rates, that is an absolute asset. It is as valuable as the real estate. Cool. All right. I just got that.

So what you're saying, because that was your quick go-to, so that's probably what you experience on a daily basis, is in the commercial space, the office space, those loans are more shorter-term and adjustable. Yeah. And if they're fixed rate, they're usually fixed for about five years, maybe 10 years at the most. In the single family market, you can get 30-year fixed rate financing. Right. Right. It's almost impossible to do that in the commercial market. So the turnover. That's what I was gathering based off your answer. Like maybe there's something that I don't know. So that makes sense now. So how do you survive? So we said we're going to save money and make investments. So what are the, I mean, real estate obviously is. I mean, real estate obviously is. a great investment to hedge against inflation. What are some other options? We want income-producing investments, all right? Is that we're looking at? Yeah, productive assets, right?

Productive assets. For the average industry, I still like index funds. Again, I'm going to quote Warren Buffett again here. Don't try to time the market or pick a stock, just index funds and really focused on income-producing companies and are low fees. It's also what Einstein said was, you know, the eighth wonder of the world. Einstein said, the eighth wonder of the world is the power of compounding interest. And it's true.

Save, invest, and let it compound, which means don't take out that income. I reinvest that income. A lot of keep growing. The power of compounding is extraordinary. Let the power of compounding and savings and investing do its magic. It takes time. But, you know, the American dream is not lost. Not at all.

I'm still a big believer. Can I push back on the compound interest thing a little bit? I look at compound interest. And yes, if you in a vacuum in a bubble, it's magical, right? At the very end and it starts a hockey stick. It's just amazing. And it makes all that time worth it. In real life application, I see it a little differently in the sense that most people

just don't make enough to save enough for compound interest to do it's magic. And for those that do and when it does, the best years of their life are behind them. And so I feel I almost look at compound interest, the financial planner that sells you the compound interest idea almost as a scam because you're trading your life for this thing that may or may not happen at the very, very end of it. And so the concept is everyone is taught to save this mountain of money. So at some point, it'll be high enough to where it creates a stream of money to live off of. Where I'm like, well, let's just take those two things, the mountain stream and just reverse

them. Let's actually focus on the stream first and then let the excess of the stream build them out. That way, you can have a little bit of your life and the benefits of compound at the same time. Does that make sense? I hear what you're saying. And there is some real logic to that except in extraordinary times or circumstances. And what I really am stressing to everybody, even if you don't believe me, just start listening

to people that you trust, that you believe are in the right spot and are objective. And what do I mean by that? These are extraordinary times. So Jerome Powell, who is the head of the Fed, came out two weeks ago, three weeks ago to be exact. And what did he say? His exact words were, we need. need to start having an adult conversation about our debt. Now I'm paraphrasing for a second. What he was saying was that the debt has become such a big problem. We don't have to start

having an adult conversation about this. It's going to lead to crisis. Read what Jerome Powell, who's the head of the Fed, said, right? This is the one person we have in our government who's running the Federal Reserve, who's warning us that, and he's a smart guy. He doesn't go into that position. And he's also a fiduciary, right? He has fiduciary responsibilities to all of us, to the entire country. And he's warning us, but we're still not listening. Here's another really reliable source.

One of the people who I think is one of the best thinkers we have in a banking industry, the head of Jacob Morgan, Jamie Diamond. Jamie Diamond came out two weeks ago and said that the debt is such a serious problem that we're going to have a banking crisis if we don't solve this. And he urged us to solve this problem before it gets too late. I think it's already too late.

But this is the CEO and chairman of J.P. Morgan, one of the largest banks in the world and who is incredibly articulate thoughtful. He would not come out and say this. And he really believed in this problem. Right. Okay. That's just two people.

But if you listen, there are an army of people out there warning us about this. So back to your point. Yeah, in normal times, you right, you don't need extraordinary savings and investments. This is not normal times. You know, it's what I'm calling the great conflicts. We have these events that are occurring for the first time in human history that are coming together, that are creating levels of contagion and risk that we've never seen before.

This country has never seen 150% debt to GDP. That's where we're headed. We've never seen it. On top of that, Matt, the average person used to live till about 45. So they would die before their productivity peak. Then the age expectancy reached 65. So people were dying right at the time where their productivity was coming to an end, right? Or retirement.

They died at 65, so they retired 65. Now we're living to average life expectancy of 75. And I mentioned this in the book, and I put a lot of data behind it. Life expectancy is now on a trajectory where if you're part of the younger generation, you're likely to live to 100 and 100. Your productivity at this human is going to still stop at 65, not going to be super productive. So now you've got 35 years of nonproductive life, retirement. We've never seen that in the human history.

Never seen it. Right? So there's another force. So right at a time when we need higher savings, more saved for retirement because of human longevity, we're going into a debt crisis where governments are not going to have the ability to just hand out money, especially to an aging population. Right. Well, they're trying.

Oh, yeah. Well, they can still do it right now. They can still hand out trillions of dollars without an impact on the economy or the stability of the monetary policy. They're not going to be able to do that at 150, 180 percent debt to GDP. It'll create crisis. So why save for the future and give away your younger years? Well, because you're going to live a lot longer than you ever have. And on top of that, there's a debt crisis on it.

So these are extraordinary times. It's not normal times. And if you don't prepare for it, you don't save, you don't invest, you don't let power of compounding really grow your security net, as I call it, in an extraordinary times, then the crisis is going to hit you harder. Yeah. Well, I can't argue with a whole lot of that. We are seeing a bunch of stuff we have never seen before.

And how it turns out, as you acknowledge, we're not smart enough to really guess, but what we can do is just our best to prepare. Yeah. And I think you brought a lot of interesting ideas. And thank you for joining us. The book is Money and Morons. I love the title. And if someone wanted to get in touch with you, Paul,

would be the best way for them to do that. They have welcome to email me. My emails on a company website. I'm also on Instagram and LinkedIn and Twitter. You can find me all of those by my name, Paul Donosred, or by my company's name, Starpoint Properties. Starpoint Properties, all down a shred. Thank you very much, sir.

Let's stay in touch and let's do this again. Thanks, Matt. I really appreciate you having me on. You bet. Take care. And that wraps up the epic show. If you found this episode valuable, who else do you know that might too?

There's a really good chance you know someone else who would. And when their name comes to mind, please share it with them and ask them to click the subscribe button when they get here and I'll take great care of them. God loves you and so do I. Health, peace, blessings. And success to you. I'm Matt Terrio.

Living the dream. Yeah, yeah, we got the cash flow. You didn't know, home boy, we got the cash flow. This podcast is a part of the C-suite Radio Network. For more top business podcasts, visit c-sweetradio.com.