#12 – Current Investment Outlook, by Jason Hartman
The current economy offers both danger and opportunity, as the Chinese word for “crisis” explains. This video from http://www.JasonHartman.com explains the effect of inflation on investment prospects. http://CreatingWealthPodcast.com
The market is currently in a period of great uncertainty and volatility. Some believe that there is a budding stock market rally developing, while others believe that the recent economic problems are merely the first of many disruptions that will shake the foundations of America over the coming years and possibly for decades. Our belief is that there are many forces pushing against a return to the rapid economic expansion that many have come to expect over the past 25 years.
The first force is the dramatic government spending obligations that are being financed by inflating the US Dollar. This will indirectly ‘tax’ economic output by eroding the purchasing power of the currency. The second major force is the inevitable increase of interest rates and tightening of credit standards. This will increase the cost of capital for business activities in the midst of rapid price inflation. The most likely result of these two forces will be a dramatic slowdown in the growth rate for the US Economy.
This will create tremendous opportunities for investors that position themselves to take advantage of the upcoming demographic shift of people out of the homeowner pool, moving into the rental pool. As millions of Americans adjust their expectations for the standard of living that they can reasonably afford, they will be paying rent while this transition takes place. Prudent investors should place themselves in a situation to take advantage of this shift.
Direct investment in rental real estate continues to represent the best way to take advantage of this trend by allowing investors to collect regular cash flow and ‘outsource’ their fixed-rate debt to the renters. Over time, inflation will push up the rents and values of properties while the mortgage payments stay flat. This will generate tremendous wealth for astute investors who place themselves in a position to realize gains from the coming shifts and disruptions.
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