Bubble Markets – Episode 585

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, on this episode, we’re going to be talking about bubbles. Yes, financial bubbles, they are happening. Some areas we’ll say it’s crazy and some areas they might begin. So why are we talking about bubbles, Kim? Well, is the word bubble or should it be bobble? Because that’s really what is happening is bubbles are bursting, but are we always aware of them? Not because when we listen to the press, because we get confused because what’s really happening is a bobble, right? It’s something that’s going up and then going back down and then going back up again. And the press focuses only on the, well, we’re back up again. So here’s the challenge with interest

[00:55] rates. Whether you’re talking about real estate, the stock market, crypto, specifically Bitcoin, mutual funds, your index funds, it doesn’t really matter what you’re talking about. Interest rates often want to be averaged. So you’ll hear people comment about the S&P 500, you know, average pick a period of time, 10 years, 50 years, whatever, 10% or whatever, it’s obviously going to vary based on the timeframe that you are picking. Yes, that is technically a mathematical average. However, dollars, math, and dollars don’t connect in the way that grade school math suggests, like the ability to calculate an average. Dollars go through those bubbles and get massively impacted in a way that our economy

[01:57] is going to operate, it’s going to happen, yet our press community doesn’t speak about properly. And what I mean is, for example, we’re in 2024, we just had a period where the stock market went down. Well, the press says it’s back up again, like everything’s fine, the average is going to work out great. Well, your dollars that are in accounts like that, and again, it doesn’t matter what they’re in, when the press talks about, well, it’s back up, the average is fine, your actual dollars went through a different scenario. So for example, if you take a mathematical average that’s going to be, and I’ve got some blog posts, I’ll find because it’s a little hard to track verbally, but we’ll put a link in this

[02:41] show with a blog post that indicates the math behind this. You can literally call an account an average of 25% that has an actual rate of return of zero. And if you add in fees from your local manager or taxes, it’s negative. Your actual return is either zero or negative, and therein lies the problem with both bubbles and bubbles. So when we look at these financial bubbles that are happening right now, are the majority of people that you’re talking with, meaning this could be inside of a prospect and client pool, are they in a state of fear or are they in a state of uncertainty or a state of confidence? What is that looking like right now? Yeah, it’s a great question. There are absolutely people that are afraid and maybe want to admit it, maybe don’t. I think uncertainty is

[03:47] the best word because that is indicative of not knowing what to do. And when people don’t know what to do, sometimes fear causes them to do nothing. Sometimes that fear or uncertainty, that discomfort, causes them to try too many things, neither of which are great. And so therein lies our challenge to take truth that we know, financial principles that we operate with, and look at what we’re dealing with, which is a lifetime of needing to handle our personal finances, which, of course, we were not taught in school. Maybe we had a stock market class in school, not very helpful for the whole big picture. So it is necessary as individuals, leaders of our families, that we take the time to learn enough about personal finances so that we’re not swayed every time the press says,

[04:45] oh, the stock market is up, everything is fine. Or every time your neighbor says, hey, I have this great investment, I put a bunch of money in, you should too. Absolutely. So I think one of the bubbles that I’m seeing that is talked amongst, we’ll call it the friend groups at a barbecue, is going to be around the stock market, and then it’s around real estate. So you’re in the great state of Texas. Austin is making the news for being in a bubble real estate market now. And we’re seeing that that causes uncertainty, but then we can see that we still have good bubbles in other areas. So as a coach and advisor, as a person that helps others, it starts between our ears. How are you helping calm that and then coach through that, Kim?

[05:45] Oh, so important that you bring up the mindset because that ability to think prosperously, which is the first of our seven principles, the word think, turn our brains on, if you will, is imperative. And we want to be thinking for ourselves. As stated, this requires some education and maybe you feel educated or maybe you feel like you need to get education. But nevertheless, your ability to turn your brain on, think long term, think prosperously, because if we’re thinking from fear, we’re not going to make good decisions. So we need to build that internal confidence that says, yes, I can do this. I can learn what I need to learn in order to make good decisions that affect my family’s finances

[06:32] long term. And while money isn’t everything, it affects everything that matters to us, an age old saying of mine. It is imperative that we gain the confidence, the contacts, and the ability to turn our brain on, look at things critically, make decisions, and then stick to them so that we’re not bouncing all over the place, consequently causing more problems than we are trying to solve. And that all starts right between the ears. Absolutely. So let’s go in a time machine together and let’s go back to previous bubbles and let’s take some insights that you’ve gained from going through those bubbles. So what are some of the bubbles that you can think of? Obviously, I can think of the stuff from the mid 2000s, but I want to go through those different bubbles. Maybe we can extract

[07:29] one or two things from each one and apply it. And I bet we even tie it to a principle of prosperity. Absolutely. Well, I graduated college in 1988, moved to Phoenix, Arizona. 86 was a major tax law change in real estate. And Arizona and other parts of the country were going through the savings and loan crisis. And so I worked at a bank. I had access to all types of clientele. I could see people’s finances in a very, for the internet, of course, very wide ranging space from destitute to literally wealthy individuals that were buying hotels in the area and that kind of thing. And I learned two lessons from that. Thinking long term, it is imperative and cash flow. So flow is our fourth principle is where the rubber meets the road. Now,

[08:30] I will add a third and that’s liquidity, which is actual cash being stored different than cash flow. And those two typically go together. Oh, I like that. So I’m going to try and pull something out. Don’t know if it’s there, but we’re going to see. When you went through that bubble and we can pull from the example of when you worked in the bank or the role as advising others, did you see some of the wealthy individuals weather the storm and come out on top? And what was it? So what did they do? So the people that weathered the storm and came out on top and some of them weathered the storm and came out in the middle, but at least they weren’t at the bottom, right? They weathered the storm. That was the important part.

[09:24] Had liquidity to solve problems and had at least a base level of cash flow that enabled them to live their life. Because if you’re scrambling for what could literally be your family’s mortgage payment next month or dinner, and a lot of people are, right? You know, when you look at America, most people do not have basic savings levels that would get them beyond two or three or four months. When you’re scrambling for that, it is very hard to just operate in your day to day life. People exist, I think, with this fear that hangs out in the background of what if. And you cannot be gracious and giving and a good business person and be thinking long term when that is going on in the back of your head.

[10:13] And so the people that weathered the storms had a very baseline of cash flow that enabled them to live their lives. Now that may have been a business, it may have been a real estate deal, might have been something boring like an annuity payment that was just guaranteed for life and they knew that was going to be coming in all the time. And then they gave first. They put themselves out there in whatever they were doing in every way. And they were gracious. They were giving. They were listening. They were productive. They thought from a prosperous mindset and they enabled good to continue to happen. While they were looking for good, they also brought good to the table. Oh, I love it. Who capsized? Can you think of

[11:05] maybe one, two people that you knew their financial situation and they capsized during that? So they had money resources, but it didn’t work. Tell us where did they go wrong from your perspective? Well, I think they are very public people, so I’m not going to state the names. And I was absolutely privy to the inside because of where I was in the bank. And there were definitely legal issues that weren’t handled properly. Now there’s always a two-edged sword with that because it’s hard to know. I get it. The attorneys, the government, whoever it was said in the end they did wrong, but that is subject still to opinion. But again, it went back to cashflow. I think also cash and liquidity like we’ve spoken of and greediness. So while they may have made some

[12:07] good business decisions along the way, there was some point where greediness played a role. And because of that, they just pushed the envelope a little too far. And that is what caused the capsizing. Okay. So here’s an insight that I have that you get as a coach and advisor, whatever role we want to call you at this time, you’re selling air, meaning if it does capsize, you’re providing air so they can breathe. You’re providing space because, you know, someone may be feeling like they’re weathering a storm right now and you’ve seen others go through it and you can, we’ve all, I would imagine, almost all of us have been there where it’s tough. And to be able to speak with someone and that person say, hey, look, like I’m giving

[13:02] you a perspective, invaluable because it often takes another person’s perspective to be able to say, hey, you’re actually okay. Let’s adjust course or for the person to say emergency, like we need to do something immediately. So this was an interesting conversation. And for any of you listeners, regardless of your financial standing, if you have in our previous episode, you know, set up and you’ve nowhere to store your cash and you’ve got all the emergencies prepared, that’s great. And if you don’t, then that’s great as well because you get to provide that perspective, the space, Kim. So that was really cool. Send an email to hello at prosperitythinkers.com. And are there any pieces of wisdom that the banker, Kim, can now tie in with the

[13:58] wisdom and prosperity, Kim? Let me pull those two and lay out some final piece of wisdom. Well, it’s what I have loved about my work. And I think probably the best title that you’re continually searching for as a person, me and you, right now is financial strategist, because due to my background and having seen a lot of work in the banking sector, then a lot of work in the life insurance sector, then a lot of work in the regular investments like stocks, bonds, mutual funds, then a lot of work in the alternative investment, think real estate, life settlements, oil, gas, you name it, and having come through positives and negatives in all of those spaces. The two things that I come back to consistently are that liquidity, that position of cash and cash flow and

[14:51] developing the guarantees that can survive all kinds of economic environments, bubbles, bobbles, crashes, you name it, plus the black swan event that we don’t know is out there, you know, you think back to what happened in 2020 and how everybody had to deal with that, along with the prosperity thinking mindset that says, step back, take a breath, look long term, we can do this, and pull together the resources that we have, make decisions, stick with them, or pivot if necessary, obviously both occur, and keep giving, keep bringing the light, keep being the gracious positive person that can get results, and if you don’t feel like you’re in that space, then make sure that you have something to turn to that can get you into that mental space, so that when the big bang happens,

[15:49] whatever that may be, you and your family have the fortitude and the spot to go to, the place to turn to, the book to read, the podcast to listen to, the person to pay attention to that will not send you into a position of fear and uncertainty, because that is not a good place to make decisions. Thank you for listening to the Prosperity Podcast. To take control of your money and have it work for you, visit ProsperityThinkers.com.