Hi everyone, welcome to another wealthy and wise Wednesday hope you are doing great this week, we just got a couple of more days until the weekend and hope you might be having some good times, summertime out there, nice and sunny, ready to go. I got a little bit of exciting news to share with you today, we are going to start something that I think is going to be really unique and very helpful, I call it the three-minute money mastery.
[00:00:48] And what we are going to do, we are going to make very short videos three minutes or less, they are going to be both in podcast form and in video. We are going to take all sort of subjects, we are going to talk about them and a very quick and concise manner. The reason is this, you know it is great if you are driving around or you have got sometime and you can listen to a 15 or 20 minutes’ podcast or watch a 15 or 20 minutes’ video and I certainly encourage you guys to do that. But there are times where you might just like a little bit of information, just a small education on a particular subject and that is where this three minutes to money mastery is going to all be about, just quick, precise, concise, to the point and we are just going to hit these things. I hope we are going to have a ton of them.
[00:01:45] So I would love your feedback on what kind of ideas and topics you would like to hit on that subject, it can be anything, anything that has to do with money, with debt or investing or banking or whatever might be interesting to you. So I am really excited about that and watch for that, I think probably about the time this podcast comes out, we might have our first one and what I am going to do is I am going to start each one of them or head each one of them with three minutes and that way you can kind of know that that is a short video, so we will call it three minutes to and then we will have out topic. Three minutes to understanding 401k, three minutes to understanding what a rough IRA is or whatever the subject might be.
[00:02:40] So watch for those, make sure you are always subscribing to both the podcast and the video to have the one works best for you so that you won’t miss those and I think that they are going to be really good, really informative.
[00:02:56] So what about this week, this week podcast, I want to talk about a few different things, one is kind of an add on to the economy that we talked about a couple of weeks ago. You know this economy is ripping and roaring, I think there is a lot of reasons for it and I think there are somethings that we got to be at least understanding what is going on but it has been kind of exciting to say the least and we have seen a lot of money chasing after this types of investment, I will use real estate as an example, there is so much money out there looking for real estate and driving prices up. Obviously it is what usually happens, part of it and at least the best part of it is we are not back into the old days of 2006 and 2007 where everything was subprime and that is what was driving the market.
[00:04:01] Subprime if you remember, this is people who really couldn’t qualify for a mortgage so what they did is they just jacked up the interest rate, put them in a subprime which you can get in to a house oftentimes with no money down and even after you closed you could pull money out of a home equity line, I mean it was just crazy what was happening. But the worst part again is that most, not most but in a subprime situation, these people were not qualified to make those [00:04:35] payment.
[00:04:37] Another part of it was how the interest was structured. Some had [00:04:43] interest rate so that every year it went up, some moved up with interest rate indicators like the Libo or prime and it prime or libo plus one or two, so if interest rate started to go up then so would your mortgage payment. So all these factors were part of what drove the crash of the real estate market in a week in ’09 because people cannot afford these mortgages and so now all of a sudden where things get a little tight, foreclosures, bankruptcies, all those kind of things came in.
[00:05:23] Well at least not going down that part again, someone have pretty much have to qualify for a home mortgage and that is good because we want people in there that eventually can end up paying off their mortgage and living there and can afford their mortgage but part of what is that there are some many people looking for home in many part of the country that home suppliers down and as a result you can’t build a home as fast enough and so contractors are out there looking for subs to help build more houses faster. The subs are so busy that they can almost name their price anymore and so they are charging more, plumbers gone up, labors gone up, so house and prices continue to escalate in many part of the country too.
[00:06:25] And again that is not necessarily all that bad but at some point you got to think that this thing can’t just keep going on forever and depending on your community, what is happening, are they getting influx of people, is it just people trading houses, you want to really analyze what is going on to you know determine if getting into real estate right now is a great place.
[00:06:53] I think we have got, you know I don’t see any real looming indicators that say that you know it is a bad thing right now, other than like I say it is just a lot of money chasing after fewer pieces of property and that can typically help drive up the prices as well when something goes for sale and it can’t even stay on a multiple listing service for more than a few days then you know you have got a pretty robust market.
[00:07:30] Okay, so we have got that, then we have got the stock market as well, it is just pushing all-time highs all the time. However, one thing that you can help justify that a little bit is at least companies out there are having at least meeting or shielding a little bit the earnings that they projected. And look with any stock, with any business actually it all comes down to this one thing, if I am going to invest the dollar, what kind of return can I expect off that dollar from the company’s profit, cash flow or what you like to look at is free cash flow then you can calculate their percentages whether the risk is there or not and if you can justify the price that you are paying for the cash flow that you might be getting, well that is why this thing continues to go up because companies are presenting some decent cash flow and free cash flows and so people are willing to pay a little bit more per share for the stock.
[00:08:39] Well again that gets to a point where there is a lot of money chasing after that cash flow and driving up prices and pretty soon you think wow is it worth paying that cash for the amount of cash flow I am going to get. And that is where we start to stumble and fall and then the company misses their earnings by a penny or a fraction of a pennies sometimes and everybody panics. The big sell off comes and then one after another you say well oh mhen I got to hurry up and get out before this guy and this guy and then I will say we have a pretty decent sell off and maybe for no other reason and just a company or two missed some of their earnings projections.
[00:09:28] The other thing that can be an empathic to that is interest rate, mhen the feds would love to raise interest rate right now, it kind of slow things down a little bit but that is exactly what happens if you start raising interest rate, it slows thing down. You know it is really just another risk, a suspense, if fixed interest rate are high enough that you are comfortable with that return, there is no need to take the risk in the market. So as interest rate come up and the profits of companies maybe come down or stay stagnant, more people move to fix the investment.
[00:10:08] The other side of the coin is that we have got a whole baby boomer generation who at some point, probably going to start taking some money out of risk and put it into the more fixed investment because they can’t afford to have an 8 or 10 years waiting period for a market to correct and that could just be an empathics to starting a market correction as well. So again we are moving pretty good, market doing good, real estate doing well, I mean there is a lot of good out there, we have been given some extra money through a tax break from congress to reduce our taxes, we have got businesses bringing back money into the United States to help build other businesses and then there is repatriating of money brings in a pretty good chunk of dough to build new business or build current business or start new ones or to buy businesses and I mean there is a lot of money out there just floating around and looking for a place to land.
[00:11:23] And if you look at what is happening in Canada in real estate, so in real estate you look at what is called cap rate, basically [00:11:32] way to return for an easier way to say it. In Canada they are willing to accept very low cap rate, 1 or 2% cap rate, just basically means if I bought a million dollar or let’s just say a one hundred thousand dollars’ piece of property, I might only get one or two percent a year of that in the cap rate or in cash flow. That is horrible by the way, just for prospective, we typically like to have an 8 plus cap rate, 10 is almost like you know starting point. I mean depending on what is going on, you might accept a little lower cap rate based on some equity participation on the other side.
[00:12:18] So that is what is happening in Canada with the real estate, investors are going in and saying hey, I got to put my money somewhere, I will be happy with a one or two percent cap rate and hope the equity play on the other side will help boost the overall return. So anyway just kind of thought would follow up with our conversation on the economy last week I believe it was or maybe two weeks ago because I didn’t want to paint this picture of gloom and doom, I just want to paint a picture of being aware of what is going on, why it might be going on and then being prepared if and where that time comes in the near future or year from now, who knows where you want to start pulling back and maybe raining in some of your risky investment.
[00:13:06] So that is it for this week, just another talks about the economy but I want to remind you, just watch for those three minutes’ money mastery podcast and videos, I think they are going to really take off and I think it is going to be really exciting, you know share them with your friends, share them with your family and we will try to just talk about all kind of different subject in a very quick and concise manner. In the meantime, if you have any questions or thoughts, comment, you want to you know discus something, send those to firstname.lastname@example.org answer them just quickly as we can, other than that, I hope you have a great week, talk to you next week, take care.