So today I'm going to tell you I told you so.
So as you guys know,
I run a big business with real estate investing and purchasing and acquisitions.
And of course, management.
So these are things that I study on my own.
So back in 2020, when everyone got shut down
and the pandemic started, I predicted we would have a crash.
So you're going to see defaults in every way.
You're going to see people
turning in their cars because they can't afford them.
You're going to see people with businesses that have leased equipment,
commercial real estate, where a center has, you know, 15, 16, 20 tenants
and only two or three or four paying, which is happening right now.
And as many of you pointed out, what happened then was all the
stimulus money that the government gave everyone and by the way, it was needed.
And of course, May of 2020, I did a video
that said all of that money is going to create massive inflation.
The point is, is that there's lots of money flooding into the economy
right now as as the money starts to as more money
starts to chase fewer goods, then the prices go up.
In a number of the videos that I did, including these two, I kept talking about
watch out for inflation, fix your debt, Be careful of variable debt
and any kind of bridge debt and all of those things that would happen
as a result of high inflation as the Federal Reserve decides
to raise interest rates.
And these two videos in August and September of this year,
I accurately predicted that the Federal Reserve
was going to raise rates aggressively, the most aggressive an ever
been in the history of the United States in order to tamper inflation.
The next three September 20th, November 1st, and December 13,
I believe we're going to see another three quarters of a point in September,
another three quarters of a point in November and another half a point
in December, which would increase the federal funds rate by another 2%.
For those of you who are saying this will never happen.
Just remember, the Federal Reserve is fighting a 6%
inflation issue during this period of time.
Some of you listen, some of you didn't listen,
but there certainly was a lot of marketing during this period
because a lot of people were saying, continue invest in stocks,
continue to invest in bonds, continue to invest in real estate.
I specifically said do not invest in real estate during this period of time.
And I recently just did a video called Pencils Down.
This week, the Federal Reserve raise their federal funds effective rate
by a half a point.
This chart here represents the federal funds
effective rate from 1955 to current day.
And as you can see, the Federal Reserve uses
this as a tool to combat inflation, which of course is high today.
They also use this to get us out of certain recession,
as you guys can see here.
These gray areas here are recession.
And I'm going to turn to in the next slide,
this particular recession right here that happened here right after 2005.
And this is the time that I personally was investing.
So I a personal experience of what was happening during this period of time.
So this, of course, is a
snapshot of the exact same chart that you just saw in the last video.
The federal funds effective rate.
But of course, from 2005 to current day, for those of you
who watch my videos from earlier this year, you saw that
I accurately predicted that the Fed would raise the federal funds
rate by three quarters of a point four times in a row
and by a half a point one time, which they just did this week.
So I predicted the last five federal funds rate increases.
How did I do that and how did I see that coming?
As you can see from this chart, the federal funds rate
is between four and a quarter to 4.5%.
What's interesting to me that even with all of the six
rate increases that we've had since March of 2022,
we've only really successfully reduced the inflation rate by 2%.
It peaked in June of 2022 to 9.1,
and this week it came out at 7.1.
So all of this work here reduced the inflation rate by 2%.
So it's very interesting.
And as many of you guys know, is that the Federal Reserve's
own targeted mandate for inflation is 2%.
Just take a look at their website and you will see that their goal is 2%.
That means that inflation is still 5% higher
than what the Federal Reserve wants as of today.
But the real reason for picking this chart
here is actually I want you to focus right here.
I really want you to pay attention to here is the gray area,
which, as we all know, is a recession and more specifically,
what the federal funds rate was right before the recession, which was 5.25%.
And as you look over here, you can see that we're still a bit away from that
which created a recession back in 2007 and 2008.
Now, we all know that the circumstances were very different in 2007, 2008,
because this is a time that I was actively investing.
But what I wanted you to see specifically
is what happened in the time preceding when the Federal Reserve
raised the race to five and a quarter and what it actually ended up doing
to the economy, because what happened here is that rates as they went up
and also made the mortgage payments go up and also made the housing prices go up.
Does this sound familiar?
What I want you to pay attention to is that this rate, of course, increase
the cost of borrowing just like the rate right now is increasing
the cost of borrowing, which then, of course, tumbled us into a recession
because in many cases, a lot of these homeowners
actually owed more on their home than their home was worth itself.
And in a recent article, we just saw that
there's nearly 300,000 people that bought recently
and now they're underwater or their home is actually worth
less than the mortgage as of right now.
Today.
Now, we all know the circumstances were very different.
And many institutions, including Lehman Brothers,
why was actually doing business with went down during this period of time?
Who knows what's going to happen at this point?
The real issue I have here is actually that
we're still at 7.1% inflation.
There are four things that I've studied a lot to try to figure out where
things are going to be in 2023, because I, like you, want to buy real estate.
I'm a real estate investor.
I do not believe that inflation will be any lower than 4% in one year from today.
Right now, we're at 7.1.
If you take a look with six rate increases, we only brought it down 2%.
This would be a 3%.
I think that's a bit of a stretch.
Now, I am going to discuss later the lag effect and I'm actually
going to do a video on that next week.
Be sure to watch that one.
I do believe, as we just saw in the chart before this, that the federal funds rate
will continue to rise and will be well over 5% in 2023.
Right now, it's four and a quarter to 4.5.
But I think we're going to see a series of half a point quarter point increases
as they start to tackle this inflation number
and get it down to the 2% mark that they all want it to be.
You take a look at the notes from the December committee
and the things that they've said in the prior committees.
You'll see that this is a majority vote, that most of these people
are all voting for these rate increases to try to tackle inflation.
This is not a contentious issue at the Federal Reserve Committee level.
I do believe that real estate values are going to continue to drop.
We've already seen single family housing drop.
As I've talked about in my prior videos.
We are now seeing commercial values drop as we start to see cap rates
increase and interest rates increase as buyers are able to pay
less to the sellers of many of these big commercial projects.
And the last one is this lag effect that I think
is going to continue into 2024.
And I'm going to give you
a little bit of a peek at what I'm going to do in my video for next week.
But this is what I'm calling the lag effect.
So if you drop a pebble in the pond, you have these reoccurring rings
that happen and that's called precession.
If we start with the 9.1 inflation in June of 2022
and we take a look at the 7.1%
inflation in December of 2022, in six months,
we have seen five rate increases from that period of time.
Now there are actually six because one of these is not included.
That actually happened prior to June.
So the real question is how long will it take
for these interest rate increases to lower the inflation rate?
And that, of course, is bound in what I call the lag effect.
There are different things that are happening at the same time
with regard to these interest rate increases, credit cards,
automobiles, real estate, refinances,
all kinds of things are a result of these rate increases.
And they're all happening at a different time.
And that's what I'm going to talk about next Friday.