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Invest Where The Economy Is Going – Economic Prediction and Action Steps
By David Campbell On 03/14/2011 · 4 Comments · In Inflation, Newsletter
Successful investors need to be able to make an educated prediction about which way markets and economies are moving.
Champion hockey player Wayne Gretzky explained the secret to his success like this: “I skate to where the puck is going, not where it is.” The same advice applies well to real estate investing. If you are willing to make a prediction where the economy is going and you are willing to take action on what you know, you can make a lot of money.
The economy and the real estate market have trends. There are times to buy real estate, times to sell, and times to just hold on. Real estate prices move up slowly and come down quickly. Fortunately, real estate trends are easy to spot and make a prediction on if you know what to look for. Unfortunately, by the time most people recognize the trend, it is too late for them to get into the game.
The real estate market is trending and I am going to spell things out for you in the simplest terms I can. Each prediction and action step could fill a ream of paper in supporting arguments, so for the sake of brevity take things at face value for the moment and in my blog we can dig into each prediction separately as time and interest permits.
Here is my best prediction and action steps to making money in real estate over the next ten years:
PREDICTION 1: Inflation will cause prices to rise substantially as the dollar devalues. I’ve been talking about this phenomenon for the past two years, and it has finally made its way into the mainstream media as retailers are raising the cost of food, fuel, and finished goods. You can visit my blog to read my extensive writing on this subject. I particularly recommend this series of articles on how to profit from inflation.
ACTION STEP 1: Acquire income producing real estate with as much fixed interest rate debt as possible. Do not skim over this statement too quickly. Having both debt AND income to service the debt are vitally important. The income will inflate with the currency and the debt will devalue with the currency. As an investor, you need to prepare to win from inflation by having both of these financial tools in your arsenal (fixed rate debt and rental income).
PREDICTION 2: Texas will dominate job growth and population growth in the United States. Again, I’ve written extensively about this in my blog: Texas Dominates Market Share. If you are acquiring income real estate as a long term investment, you simply cannot ignore Texas. If Texas were it’s own country, it would be one of the largest in the world from the standpoint of population size, geographic size, economic power, and political clout. It would also be one of the fastest growing countries (states) in the world.
ACTION STEP 2: Acquire income producing Texas real estate near major metros within a short drive of major job centers. There is a lot of open space in Texas however, land is just now becoming scarce in the urban centers. The scarcity of land in the major metros is an emerging trend for you to capitalize on. People need jobs and houses. You should own houses near major job centers so there is a constant demand for your housing. A major job center will have at least 1,000 employees and will create a good or service that imports revenue from as far away as possible (e.g. a business with a local and world wide customer is more economically stable than a business who only has a local customer). To learn where the revenue importing job centers are, here is an interactive map for you to use. (Special thanks to Hassle-free Cashflow Interns Rob Kippel, Brandon Krasner, and Heather Weldon for their assistance in creating powerful tools for you to use. If you are interested in becoming a Hassle-free Cashflow Investing intern, please send us an email.)
PREDICTION 3: Hispanics will dominate population growth throughout the US and especially in Texas. The Hispanic population of Texas grew by 2.8 million people over the last decade. This accounted for 65 percent of the state’s growth over the last 10 years. In 17 Texas counties, the Hispanic population grew by more than 100 percent. The Hispanic market is the fastest growing segment of the middle class. Here is a great newspaper article on the subject. I predict this trend will pick up speed partly because of immigration and partly because the Hispanic birthrate is double what it is in other ethnicities.
ACTION STEP 3: Invest in real estate and businesses that would appeal to a middle class Hispanic market. Make sure your property managers speak Spanish and advertise in Hispanic media. Hispanic families often have more children, have multiple generations and families that occupy a single home. Buy properties with several bedrooms, but modest square footage to be price competitive. Real estate prices go up when more people compete for a limited supply of inventory. Own the types of property that the maximum number of people would like to live in – single family houses with 3 or 4 bedrooms and 2 bathrooms. A master bedroom is essential. Game rooms, lofts, and media rooms are a non-recoupable expenditure to a cashflow investor.
PREDICTION 4: Domestic military spending will contract. As the US becomes further entrenched in foreign wars, the US will spend less money keeping troops inside its borders.
ACTION STEP 4: Do not invest in military towns. If a military base represents more than 10% of a local economy, put your dollars somewhere else. It isn’t worth the economic risk if the military downsizes or eliminates the military base that is the lifeblood of your town.
PREDICTION 5: Fewer people will be attending college and more people will return to manufacturing. The US economy is globalizing and many white collar jobs are headed overseas. As the dollar devalues, it will be more competitive for the United States to manufacture things and export them to emerging markets in Asia and South America.
ACTION STEP 5: Invest in areas of the country such as Dallas where there is a tremendous amount of manufacturing infrastructure already in place. Large manufacturing centers need transportation logistics such as heavy rail, trucking centers, highways, and cargo airports. Manufacturing centers also need a very cost effective workforce and real estate prices. Dallas-Fort Worth is a prime market for this.
PREDICTION 6: States with a favorable business climate and a low income tax burden will enjoy the most prosperous economies. Formerly prosperous and business unfriendly states such as California will raise taxes, lower wages, and default on government pensions to cover their economic shortfall. In areas where big business feels constrained by taxation, labor relations, and environmental regulations, expect declines in government services, poor quality public education, and weak transportation services as a result of unparalleled shortfalls in revenue and a declining business environment.
ACTION STEP 6: Examine the financial well being of any state, county, and city in which you decide to invest. Live where you want to live, but invest in areas where local and state governments embrace responsible business growth.
PREDICTION 7: Interest rates will rise as the US government receives foreign political pressure to stop buying its own bonds and mortgage backed securities. The stock market will see unexplained and radical fluctuations in value as the government manipulates stock prices through covert buying and selling of public traded stocks.
ACTION STEP 7: Do not invest your IRA in the publicly traded stock market. Cash investors can get in and out of the stock market when times are turbulent while IRA funds are often “stuck” in the market with no place to go. Evaluate options for investing your IRA in private placement investments, businesses, notes, or the indirect ownership of real estate. I do not recommend buying real estate directly inside your IRA, but there are great strategies for getting your IRA funds into the indirect ownership of real estate. If you’re interested in this, send me an email and I’ll send you some great information on creative ways to invest your IRA in non-volatile IRA friendly assets. There is no one size fits all investment / financial strategy. That’s why we want to hear from you so we can help you develop a personal investment philosophy and then take action on it. If you’ve read this far, pick up the phone 866-931-9149 ext 1 or send me an email so you can take action on these ideas. CLICK HERE to schedule a no cost investor strategy consultation with David Campbell or one of his team members. We are here to help you come up with creative investing ideas and solutions to your financial goals.
While I hope everyone reading this will do business with my real estate development and investment companies, I appreciate that there is no one size fits all solution to your financial goals. The purpose of an investor strategy consultation is to help you understand what your financial goals are and find a customized solution to solving them. I look forward to hearing from you and hopefully I will be able to introduce you to an idea, person, or opportunity that will revolutionize your financial life.
To your success!
Professional Investor, Developer, and Financial Mentor
“The United States of America has not had a trade surplus since 1975. We have not had a trade surplus with Japan since April, 1976. Every year since 1983 we have been in deficit with Europe. The last time America had a trade surplus with both Russia and China was a very brief period during the Cold War. We have been running ever increasing trade deficits with South Korea since 1998. Our 1993 trade surplus with Mexico is now a 100 billion a year trade deficit. In the 1970’s, 80’s, and much of the 1990’s our trade deficit was never more than one half of 1% of GDP. We now find ourselves with a trade deficit of between 5% and 7% of GDP depending on how you count. From 2002 to 2007 the trade deficit exploded. The only reason unemployment stayed well under 6% is because of the credit bubble. 63% of all jobs created from 2000 to 2006 were housing or credit bubble related. We did not feel the destructive affects of the trade deficit because of this credit bubble. I have concluded from work I have been doing that America will never get unemployment even under 7% with a trade deficit of over 3% of GDP, without a major credit bubble. The U.S. Economy has actually stopped functioning like a real economy. We literally need a credit bubble to function. America must move from the ideology of free trade to the economic policy of balanced trade. Until this structural shift takes place you can bank on the American economy being the laughing stock of the world economy.”
-Ames F. Tiedeman
Lower taxes? Higher taxes? Does anyone actually think being plus or minus 5% on taxes will make a lick of difference for the U.S. economy at this stage in the game? The economy will never again work the way we all want it to work with the current account deficit at 6 or 7 percent of GDP. You cannot get unemployment even under 6% without a credit bubble, with a current account deficit as large as ours. We have not had a trade surplus since 1974. We have been in decline for 40 years and this decline has only accelerated in recent years. We closed 55,000 plants in the United States since 1980. Your politicians won’t tell you this because some of them fed you the false promise of free trade. Others don’t want to admit NAFTA has been a complete failure for America. Great for Mexico as that giant “sucking sound” Ross Perot predicted has materialized. Clinton and Gore promised the American people ever bigger trade surpluses with Mexico and ten’s of thousands of new high paying jobs. Just pass NAFTA they exclaimed! Quite laughable, really. We have gone from a trade surplus of a few billion a year to a trade deficit nearing 100 billion per annum with Mexico. What is equally as laughable or insulting is the trade deal Obama has just signed with Columbia. Do we make anything they can afford? Of course not. Columbia will simply become a new launch pad to make textiles and sell them into America. How about the trade deal Obama signed with South Korea? This is an interesting one. Within the bill on the U.S. side is a provision to provide worker training for displaced Americans. So we are now so stupid that we are signing trade deals that we know will diminish the U.S. labor force. The insanity is just that! Does anyone think the South Koreans would agree to a trade deal if they were not sure to win? Does Obama understand that the South Koreans are fierce nationalists who will never let America win a trade contest? Did my ancestors lead pre-Revolutionary War skirmishes against the British at Lexington and Concord in 1775 and early 1776 only to have America end up how it is today? My blood has been on this land since 1635. How many of my ancestors ever dreamed that America would be so deep in debt and short on ideas? Would any of them ever have thought that such mediocre men would one day be leading this nation? America has done a terrific job of creating a low employment and low wage society, for millions. Quite sad indeed. No civilization has succeeded by consuming more than it produces. We must massively restructure. Until America decides to produce what it consumes you can forget about any long term economic recovery. The financial games all failed. The credit bubble is gone and now the U.S. economy is exposed as the biggest joke of all time. Credit bubbles have a way of masking the real issues. How do we fix the American economy? Start by making every American who has received a Nobel Prize in economics return the award. Why? because they were either 100% wrong or their work proved to be of no benefit to the American economy. Next, round up every economist who advised Nixon that if America left the gold standard and moved the world to a floating currency regime; that America would never, ever, run a current account deficit. And I am very sorry to inform everyone that this would include the late and great Milton Friedman. Sorry Milton, you were dead wrong too! Next, leave the WTO, end NAFTA, and go about setting up country-by-country trade deals that are realistic based on where America stands today. It is not 1955 anymore. The world has either matched us or surpassed us in industry after industry. We have literally become an emerging economy is some industries as we have faltered so badly. Next, move to a flat tax, and end all farm subsidies. Cancel most government social programs like food stamps and deport 100% of the people living in America illegally. Make it a high crime to employ anyone not here legally. Finally, for major industries such as steel and automobiles, move to a must-be-made-in-America policy. No longer allow imports of products in specific industries. They must all be made in America. We must employ our people. We can no longer employ the world via our consumption as so many Americans remain unemployed. We must use our 50 state union to our advantage. We must promote massive trade between the states. We must socialize CAPITALISM to avoid becoming a socialist state! We must reinvigorate the American people. We must manufacture. And who running for office can lead America on this grand and pious endeavor? Who running for office today has the passion of a General MacArthur or the skill of a Chester Nimitz? Who has the energy of a Teddy Roosevelt? The men who command the attention of the electorate in this age of mediocre ambition are all too small to make a difference…
Great analysis, but like you mentioned, “the men who command the attention of the electorate in this age of mediocre ambition are all too small to make a difference…”. I would also add they’ve all become corrupt and their value systems have degenerated. Most of the American population nowadays are dumb, uneducated sheep, so you can’t expect any action on their side either. Nothing is worse than a flock of dumb uneducated sheep run by a corrupt and selfish government. I’m afraid the only salvation for America will be its own inevitable demise. I guess Karl Marx was right after all. Corruption and greed are the cancer that will eventually kill America and what it initially stood for.
Thank you for solid, good content.