So as I say, who knows. I can't tell the future. I'm
not trying to predict it. What I'm saying is, let's be prepared for
the good, the bad, and the un proceed if you have your cash.
One of the things that bupp But is famous for is capturing his cash
and not buying anything, no stock, no house. In fact, he
doesn't he's not really in the real estate at all. But let's understand,
he captures the cash and waits for an opportunity to fall in his lap.
And that's what he studies every day. He suits up to go to the
office, literally suits up and his old Cadillac it was an old truck to
study opportunities. You're listening to Carrie Let's his Financial Survival Network where you get
valuable information you just can't find anywhere else to thrive in today's trying times.
You need the Financial Survival Network now more than ever. Go to Financial Survival
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more than ever, and welcome you are listening to watching the Financial Survival Network
on your own's Terry Lutz. Well, we know markets in the US are
in flux right now? Are we becoming another Japan? And hey, perhaps
Japan is where you should be investing. That's where Warren Buffett recently bought a
whole bunch of those stocks. Maybe it's a place to go. John Grace
is with us now. John, it's great to have you back on the
show. And so tell us what can we learn from Japan? Well,
it's a great question, carrying goodness seeing you again. And what we're trying
to do is, you know, people will get lost, I think and
saying well, it has to be positive, you know, Ever, Maiden,
you say something negative. But my best example is, jeez, you
trump probably drive your car with GPS on it right and it tells you objects
on the road ahead or speed trap ahead? Is that bad news? No?
What do you do? You do? What I do? We sit
up, we're more alert and we don't want to hit anything. So what
we're talking about here is maybe we can you know, maybe we now understand
after COVID that we're drinking the same water, we're breathing the same air,
we're flying the same airplanes, and maybe we can turn on our GPS system,
put on the headlights, the high beams and see what's around the road
ahead. So what's so fascinating is I think to a person, we all
agreed back in the late eighties Japan was going to be number one in gross
domestic product. We were okay with that, right, they got the sun
on the flag there, they've owned everything alert by go ahead, but that
did not happen. In fact, what we can see it is approximately twelve
twenty nine eighty nine. That's when first the Japanese stock market he started close
to forty thousand, and then in about eighteen months or so, Carrie,
the Japanese stock market measured by the knee K two two five that would be
the equivalent of the S and P five, but dropped eighty percent eighty set,
so a million dollars went to two hundred thousand. Okay, a year
later, Japanese real estate dropped seventy percent, I mean down. So that
means the ninety dollars went to three hundred thousand, So you used to have
two million. Now I'm at the bottom or so you have a total of
about five hundred thousand. And here's the trick question. And I emphasize carry
it's a trick question because you don't have to study this to get the answer
correct if you follow the formula. When here it's a tricks question, that's
a clue. Right, So here's the trick question. Which do you think
has come back to even has it been? In the Japanese stock market or
the Japanese real estate market. Either neither go to the head of the class
like Antel survival. Neither imagine gets over thirty years later, and neither your
stocks nor your real estate you had thirty thirty four years ago are back to
their highs. And now you're thirty four years older. Just imagine that for
a minute. Now, the NIK has recovered to some extent. Last I
looked, it was around thirty three thousand, but the peak was at thirty
nine thousand. What does that mean? You're still about what five ten percent
below the high water mark? And that's assuming what you didn't sell one share,
You didn't need any money over the last thirty three thirty four years.
Oh, where is that true for anyone? Okay? And then now we
see with real estate, no, neither the real estate market nor the stock
market has come back to their high water marks. In fact, now we
can see evidence that there are eleven million homes in Japan that are completely vacant.
That's hard to imagine, but that's the way it is. And from
the source that I bound suggests that the Japanese could be on the trajectory of
tripling that number to thirty three million, and they could all be vacant out
of the total of sixty two million homes for a population of about one hundred
and twenty seven million people. And let's understand what's interesting. Part of what's
interesting about Japan. They work hard, they're known to be very intelligent,
they're fastidious, they typically tend to be polite, and they have the highest
life expectancy at eight four point eight. By the way, we're at seventy
seven. That's an interesting number for us to watch. Why is it interesting
because I would submit that the real estate boom that we've so enjoyed here this
time with upon is primarily due to baby bloombers seventy six million people strong on
born between nineteen forty six nineteen sixty four. But seventy seven is important because
seventy seven is the average age of death of America for most of US,
seventy seven almost eighty five in Japan, higher than eighty in the UK and
Canada much lower than eighty four the US of A. So here comes seventy
six million people that came into the equation called the United States of America.
And I don't know if it was irrational exuberance or what it was, but
when you have seventy six million people come into the equation, it stands a
reason you have a lot of demand for a lot of things. So here's
the question, what happens when seventy six million people go to heaven? Well
look at Japan, and we looked at what happened after the Great Digression here
in the United States of America, where New York real estate took four decades
to come back to even the life expectancy if we were adults at that time.
Kerrie was at think fifty seven. So what was that? Say,
your real estate went down seventy percent, your stocks went down eight percent.
Stocks took twenty five years to get back to even New York real estate always
the capital capitalism right, took four decades to get back to. Ever,
neither the real estate holdings nor the stock market came back to their high water
mark while you were still here. So I suspect a lot of people died
with regret, and now we see this pattern playing off in real life right
before our eyes and Japan. Could it be that we're going to follow their
example? Well, I think that is very possible. Again, why seventy
seven, We've been told what it's about location, inventory in interest rates.
Well, if it was so important about interest rates, why were baby boomers
standing in line in the year ladies to buy a house at sixteen percent?
Maybe it's not so much about interest rates, it's about studying something we'd all
do, the buying and selling behavior based on age. So seventy seven is
the average age of death in America. Seventy eight happens to be the average
age most Americans sell, and if you look at any block across the country,
probably four to five homes on each block or owned by boomers. I'm
just saying something. Let's get ready for something we have not seen before.
It is completely unprecedented, but it would not surprise me in the environment where
people dying outpace people buying, that prices and reds do what you've not seen
them do before they go down, and they may stay down. So this
might be a good time to look for bargains as Buppet is famous for.
It also might be a good time to take some chips off the table,
right because you count equity is cash, but it really doesn't count as cash
until what you cash the checks. Kind of like going fishing. If I
tell you about the fish that got await, you don't want to hear it.
Show me the bish eat the fish. That's a better story than telling
me about the one that got away. So, yeah, these are interesting
times, and they were completely unpreceded. So is it strictly demographic here or
is it it is there more at played here? It was probably more in
place. Yeah, but I would say that the majority of us. When
we have a friend of mine who runs a big real estate company says John,
I've been in the business forty years. I've seen everything, and I'm
like, what you have seen is what we've all participated. It. That's
boomers coming at the equation, driving vices to new highs. You have not
ever seen seventy six million people go to helld it. That's a whole new
environment. So do not tell me like you did about COVID. Oh,
we'll be back to normal justin a couple of months. Now, we're not.
Don't tell me that it's got to do what it's done because we're in
complete, the uncharted, unprecedented territory. Again, if the demand seventy six
million people out of what three hundred thirty million or so in the country go
to heaven and the supply of homes across the country remained the same, they're
not going anywhere. What do you think prices or rents are going to do?
I submit that they're going to do what they did after the Great Depression.
Prices and rents went down after the Great Depression. So as I say,
who knows. I can't tell the future. I'm not trying to predict
it. What I'm saying is, let's be prepared for the good, the
bad, and the un proceed if you have your cash. One of the
things that Buffa is famous for is capturing his cash and not buying anything,
no stock, no house. In fact, he doesn't he's not really in
the real estate at all. But let's understand. He captures the cash and
waits for an opportunity to fall in his lap. And that's where he studies.
Every day he suits up to go to the office, literally suits up
and his old Cadillac it was an old truck to study opportunities. And I
loved his line that the bad news is an investor's best friend. Bad news
is an investor's best friend. So again, if we're trying to hold onto
the equity, if prices are going down and they may not recover while you're
still here, you're wish you had gotten your cash, like going to Vegas,
take the chips off the table and come back for another game. Let's
catch the next way, no, no doubt. So you're basically telling your
clients sell. Well, I'm saying, here's what we think is going to
happen. Here's what we think is happening right now. And for those who
have excess real estate, you know what we're saying is if you don't love
it, lead it's all right. If you don't love it and have to
have it, get your cash. I've got a friend of mine with twelve
properties. I said this, just tore over the weekend. Sell half of
them. I don't know what's going to happen, but you know you've got
no less than twelve million dollars sit lined up in twelve different properties. Right.
They're all in southern California. It's called earthquake country. If you have
twelve million dollars in Amgen, which is right up the street here, I
would say the same thing. Take some chips off the table, don't leave
it all in one spot. That is not diversification. The asset type is
the same. All right, twelve million dollars and that probably a modest estimate,
is a whole lot of money. Take six million up the table.
While you can't at these high water marks and figure out what you're gonna do
with the cash sometime in the future. But I would submit say it,
let's look at it this way. Don't sell high and buy high, right,
keep your capital. I'm talking to young people and they say, look,
we've got the down payment, we want to buy a house. I'll
say, look, well, with God, if you're okay with prices dropping
fifty percent. Our research team suggests that real estate prices in the US of
A will revert back to their values in twenty twelve. So on average that
might be as low as working person in Nashville, as high as seventy percent
in Phoenix, but on average across a country, a reduction of about fifty
percent. From here. Again, no one can tell the future, but
if you've got your cash, you don't really give so much. You know,
you don't give a hoot what happens to that value because your cash is
in your pocket where you can watch the movie and you can, as I
say, catch the next way as it shows itself up. But once you
have the equity and you see the decline and you don't see the recovery,
it's depressing. His Hell yeah, it could definitely ruin your day or even
your retirement job percent it could ruin the rest of your life. A sumit.
That's part of what drives me studying what happened during the depression. As
I say, age of death was fifty eight. You had to be an
adult to have a million dollars anywhere, right, but not the stocks and
the real estate in New York didn't come back while you were sheer. No,
I want you to have the money in your pocket, not on a
state that as you think, it's couch and then as I say, you
can catch the next way. When it comes to real estate, were suggesting
that people look outside of residential look at warehouses, look at medical pertes.
Okay, look at infrastructure, look at these places that the man's not you
gotta you know, I said my wife or Christmas yept. I counted all
the little stickers from the different places where it was warehoused from China. I
counted over twenty. Well, I would sitting to you that's a good place
to look at it. Desmon opportunities where there's always something coming through this.
Somebody's paying for it to be shipped to, own the warehouse where they own
the distributed, best facility, own the medical facility where we're standing in line
waiting to see a doctor. You know, thirty or everybody's ten thousand people
a day of turning sixty five through twenty thirty. So let's look at where
the wave is headed as opposed to where the wave is crested. H all
right, So, and how confident do you feel about this? Well,
you know that I love the question. It's close to the question where people
say, well, when's this going to happen? I'm like, I can't.
It's not about the prediction. It's all about of preparation. And I'm
going back again to the research team because that's what they do. And in
six o seven they suggested that real estate prices were likely to drop by in
this country. No like making that forecast. From what I can see,
on average the decline was about thirty or percent across the country. That's pretty
close to forty. They're the ones who are saying dead. Research said,
right now, be not surprised to see prices drop fifty percent. And I
don't know how we're going to miss this. As I say, we've only
seen seventy six million people show up. What happens when seventy six million disappear?
Fly got a lot of illegal aliens who are openly going to take their
place right Well, you know when it comes to that subject, and this
comes from the research team, and understand that the majority of the folks in
the road financial advisors really from around the world. The ones who are from
the US are generally Republican. And the research team looked at that situation and
what they look at many people were surprised for them to not look at it
from an emotional standpoint, but look at it from a standpoint of it is
it a net gain or get a net loss? And what they found was
it was a net gain. In other words, whether you were legal or
illegal, when you come here, you put a lot of money into social
security and into you know the taxes, property taxes, sales taxes. Then
you get married and you have kids, where are you going to go?
So what we're saying we don't have enough people. No country is replicating itself
outside of India, which means we have more people dying than we have children
being born. And that was happening before COVID, it got exasperated by COVID.
So I'm saying that, you know, if you look at Canada as
an example, I believe they brought in over a million immigrants last year.
They're the only ones with an open door and they'll take everybody, but and
and understand they often get the best and the brightest. But when you have
an attitude that you know, we're just fine and we all need anybody,
well, you're gonna, you're gonna. That's when you find that you what
do I just hear a star brand new Starbucks closed in northern California. Just
heard this this morning from a real estate group. And it closed because they
couldn't find people to pay twenty bucks an hour. We don't have enough people
here. So whether you like them or not, remember the reason that we're
younger than Japan is because of our immigrants they send to have more children.
They tend to have children. The rest of us not so much. So
we just need more people. And again it doesn't matter as far as I'm
concerned. We prefer people to be legal. But at the end of the
day, it's a netbitit to the country, legal or illing. And I
don't disagree with you at all. I just think it needs to be more
controlled. Yeah, idulated a process, yeah, cross ends reft exactly,
free for all over the border just doesn't work. You know, bad things
can happen as a result, and it's got to be orderly, much like
it was the turn of the century. No one in the country since the
since the Native Americans are here at the Mayflower hold up, nobody's ever been
thrilled about immigration, right, Um, very few. A lot of Well
we usually my group got here, so raise the drawbridge. Right, that's
how bad? Right, that's it. But the fact is, when it's
done correctly and not with ulterior motives. But actually, if it's a good
of the country and the good of the people coming here, it's always been
a net positive, everybody wins. Yeah, So let's go back to those
days, all right. So after the demographic cliff coming and you know it's
got all sorts of unintended consequences. Is AI and is robotics gonna get us
oute of this job? Well, that's the wild card. I mean,
we'd all normally we know most of us don't really quite understand kind of like
the Internet when becknees when that was new, that is this, how does
it work? Well? Same story here. Yeah, But you know,
as a friend of mine was saying again just this morning and another business call,
this gentleman said he used to have eighteen people work for him, and
now he can do him with with technology and his own if he's eighty five
his own capabilities, he doesn't need those eighteen people. He can get it
all done himself. So yeah, it's gonna be very interesting how this h
this plays out. But that's also why we want to keep our eyes to
the on the ball in terms of let's see where opportunity can present itself and
insert that opportunity. Totallyted ring on that the implication of AI are just really
completely not understood and appreciated it this point. So, like you said,
there are sectors that you do like sectors that you don't. What as you're
like number one sector looking ahead that you think, regardless what happens demographically,
it's going to be a winner. Well, okay, for investors outside of
real estate, we like first and foremost that all the positions are actively managed.
If we look at most mutual funds, particularly in two thousand and eight,
where the mark was off thirty seven percent, the majority of mutual funds
stayed passage. That means they were bi percent cash and I get five percent
invested. And when the market was off thirty seven percent, a lot of
the no load funds that so many of so many experts that said, put
all your money in it and forget it. We're offull with forty percent,
and by the way, they often took four to five years to get back
to even as opposed to a passive POSI should we like acted bench, which
for some clients the portfolio for them, if that was great for them,
started at five percent and may have ended eight up to one hundred percent cash.
So think of a karate kid wax on wax off in O eight.
You wanted to wax off, you wanted to get out of shares into cash,
and you need some one or some system that can systematically pull that punk
or you you know, just let it move. Not in a balk necessarily,
but looking at your account every day asking the question, is a risk
on a risk in O eight you wanted risk off? Starting March nine,
two thousand and nine, you wanted risk on because we're off to the races,
right, So that way you maybe the account, as I say,
started O eight, five percent cash went to forty fifty in some cases got
to one hundred percent cash. In those scenarios, you can see the evidence
that those accounts that work like that might have been off less than twenty percent.
Well that's better than thirty seven or forty or more, okay, and
burns the coast became clear that it's off to the races again. Maybe you
have the system designed to move your money on your behat out of cash back
into shares, risky assets, so that now you're ninety five percent invested five
percent cash. That's the combination that we like that we think what we've seed
it hold up better at O eight in in twenty twenty two, as opposed
to the markets just last year being off twenty to thirty. If your account
was off let's say ten or less, you can go, well, I
don't like losing a hundred thousand dollars on one million two percent of a billion,
but I'd rather it'd be one hundred thousand as opposed to be the market
at twenty percent or thirty percent. That would be a minus of what two
to three hundred thousand. So let's what do they say when you find yourself
in the ditch, stop DIGGI let's stop digging your ten percent as opposed to
watching the account prop twenty thirty percent, because then we don't need any hell
married mass just to get back to either what else we like our private equity
and private credit positions, and for retail investors, that's relatively new. Those
kind of areas of investing. The institutions and endowments have been in for over
forty years, and up until recently, the only folks who had the ability
to take a position had to be They had to be accredited, had to
have a million dollars outside of the house to be a willing to talk to
them about such a position. But those those those rules are changing and some
of these positions that as I say, the institutions and endowments have been about
opening up to retail investors, so that you can you know, you mentioned
more Bopa. He's famous for taking huge positions in public companies. There's far
more private companies, and there are public companies in the USA Bay. And
if it is the case that there's a pool where you can invest in all
the twelve or fourteen different private companies that are trying to do well and have
done well, we find, for example that two thousand and twenty two those
positions, the ones that we've been monitoring and recommending, had pretty good yields
and load amid double digit returns. We think that will continue. We called
these positions back in twenty eighteen, twenty nineteen, we thought they would be
recession resistant, was using black men, and then so far that's exactly what
they've proven to be recession resistant. And that's the point. We want to
limit our losses where we can't and see some gains in other positions. But
that means we have to be diversified in more things than the securities industry has
told everybody. You know, you're diversified, carries sixty forties old biic stocks,
bonds, bond stocks, You're well diversified. But we look at nail
as an example, I count seven legs underneath their portfolio stools. So clearly
I submit that we can't do what Yale does, but maybe we can learn
from some of the best and brightest. And by the way, the last
time I look, Yale's endowment exposure to US stocks is all of three percent,
not thirty. Not set them in deeper, set three percent. That's
not a suggestion, it's just man. Notice their exposure to the traditional assets
is a lot less than one would think, and they have, as they
say, more legs underneath their portfolio stool. So maybe we can learn how
to do some of the things that major endowlets have done in our own footboards.
All right, all right, John, really appreciate you coming up talking
about this. I think it's really important. It's not being paid enough attention
to for sure. Hey, where do we find you out these days on
the internet? How do we connect with you? We're at Westlake Financial Advisors
dot com investors Advantage are happy to answer questions and see how some of these
things make sense for folks. And one of the questions that we like to
help people answer is not are you conservative monitor aggressive? I don't understand the
question you don't understand the answer, So what the heck are we talking about?
How about we get deeper and have you answer in a series of ques,
and that includes what kind of loss can you accept? Is it eight
percent? Is it eighty percent? You tell me how bad it gets before
you pull out your hair. But you want to see how your portfolio did.
We're working with the Liberal just last week. This lady has been to
seventy countries. She's well into her mid seventies. And when we back test
to look at her portfolio and oh eight, is she held the same positions
at oh eight? And she did well. We reviewed her portfolio at the
time while the market was off thirty seven percent, her now was off seventy
percent. That's that's huge. So yeah, most people don't look to see
how bad it got, which I submit leads you open to it doing something
like that again or words. So maybe we should learn from the desk,
not just repeat it and see what kind of losses we've experienced. And then
the question becomes what kind of lost are we okay with? And is it
possible to put a portfolio together that might perform within your lost parameters as opposed
to be telling you Hey, it all stops for a long wall, that's
what it does. You got some more money, don't you? Yeah,
exactly exactly. I couldn't agree with you more. And yeah, those one
decision stocks from the nifty fifty during the seventies. We all know that that
to wound up the trail of tears and adapt any of these little investment concepts
to your will eventually look great while they're working, and eventually that will fail.
And that's where you wind up. Hey, if you have a question
for John myself, email k l at Kerry Lutts dot com and make sure
you go over to Financial Survival Network dot com. John site is at the
show notes for this interview. While you're there, sign up for your free
newsletter, John. Great. Having you on is always. Thanks for that
insightful recitation there really opened my eyes my pleasure, Garry, look forward to
seeing you next time. Thanks for listening to carry Letts's Financial Survival Network,
your solution to today's trying times. For the latest, go to Financial Survival
Network dot com. Financial Survival Network now more than ever