TGCI 32: Financial System vs The Economy. What is the difference?

Top 6 Reasons To Invest Outside of Wall Street
Download this free e-book to find out why it's critical to your financial success and what the alternatives are.

I have read and agreed to your Privacy Policy

Episode 32 – Financial System vs The Economy - What is the Difference?

Show #32 - Russel Gray - Episode Art


In today’s show, Pancham interviews Russell Gray, co-host, The Real Estate Guys Radio Show

We start this show with Russell giving his views on Wall Street investing. Has the coronavirus pandemic simply highlighted the flaws in our financial system? Will the financial system ever go back to what it was in the Pre-COVID era? Russell shares some interesting insights on this topic.

As the pandemic wreaks havoc in our credit-based financial system, investors need to take a long-hard look at their portfolios and determine the best approach going forward. Russell shares how a low-interest regime can open up some excellent investment opportunities in precious metal and of course, real estate. 

If you are worried about your finances due to the ongoing situations, tuning in today’s show will give you some great insights.

Pancham Gupta
Russ Gray
Show #32 - Quote - Russ Gray

Timestamped Shownotes:

  • 01:34 – Russell’s background information
  • 02:00 – Why is Russell dead against investing in Wall Street?
  • 02:55 – How did Russell’s first real estate investment pan out?
  • 03:28 – Russell’s father loses $12 million (his entire life savings) on the Wall Street in 1987!
  • 05:22 – How Russell lost his mortgage business due to a Wall Street crash
  • 07:11 – Financial system vs. Economy – Understanding the difference in simple terms
  • 10:00 – Will the financial system ever recover from the impact of the coronavirus?
  • 10:57 – Are there any business opportunities that have sprung up due to the current situation?
  • 13:35 – Understanding the nuances of a credit-based financial system
  • 15:29 – Russell shares how zero passive income wiped him out
  • 17:22 – What is the fallout a low-interest rate regime?
  • 18:11 – Do gold and silver prices follow similar price trends?
  • 20:09 – The Gold Collar Investor Book Recommendation: The Creature From Jekyll Island
  • 21:45 – Russell questions the traditional approach of investing in stocks, bonds and cash; he explain real estate is your best option
  • 24:00 – How leveraging can help you generate excellent returns in real estate
  • 26:28 – Can you generate passive income from real estate?
  • 29:46 – How can you protect your net-worth in the wake of the coronavirus?
  • 30:55 – Is it worth investing in silver right now?
  • 34:00 – Should you get loans and take advantage of low interest rates?
  • 35:20 – Importance of understanding the difference between a failing asset and distressed assets
  • 39:46 – Taking the Leap Round
  • 39:46 – When was the first time you invested outside of Wall Street?
  • 41:32 – What fears did you have to overcome when you first invested outside Wall Street?
  • 43:02 – What was one investment that did not go as expected?
  • 46:03 – What is one piece of advice that you would give to people who are thinking of investing in the Main Street?
  • 48:42 – Russell shares his contact information

3 Key Points:

  1. Financial system vs. Economy – Understanding the difference in simple terms
  2. How to spot business and investment opportunities in the wake of the coronavirus
  3. Why the traditional approach of investing in stocks, bonds and cash is a flawed one

Get in Touch:

Read Full Transcript

Welcome to The Gold Collar Investor podcast with your host Pancham Gupta. This podcast is dedicated to helping the high paid professionals to break out of the Wall Street investments and create multiple income streams.

Here’s your host Pancham Gupta.

Pancham: Thank you for joining me today and I really appreciate you for listening. I started working in the corporate world in 2005. 2008, marked as the first market crash of my working life. Since I had just started working like three years before the crash, it did not impact my finances that much. However, since then, the market has been going up and up. How many times have you heard that the economy is doing great in the last 10 years? I have heard it many, many times. Does it mean that we have a good financial system? Now I have been a student of the market for the last decade or so, and I always used to wonder, do we have a good backbone that backs this good economy? Last expansion marks one of the longest expansions in the history until the corona virus crash started in February of 2020. Is it Corona virus that caused the market crash? Did we have a stable financial system to begin with? What is the difference between the financial system and the economy? To answer these questions, I have invited Russell Gray to the show. He is the co-host of The Real Estate Guys Radio show. And Russ has been a financial strategist with a background in financial services, dating back to 1986.

Russ, welcome to the show. 

Russell: Thanks for having me.

Pancham: Are you ready to fire up my listeners break out of Wall Street investments?

Russell: Well, of course. You know the answer to that because it’s my mission in life. You know, I’ve been burned by Wall Street. I’ve seen my father burned by Wall Street and I have just dedicated my life to helping people invest directly in Main Street. Because right now the system is broken people, you know work hard on Main Street. They do real work. They earn real money and then they send it off to Wall Street who skims and doesn’t really add any value, gambles with it and often loses then turns right around and goes to the government for bailouts which comes from where? Main Street. And so you know, Main Street money should be invested directly in Main Street, not in Wall Street. We need to get Main Street money out of Wall Street and back on Main Street, where it came from and where it belongs.

Pancham: Wow, that’s probably the most passionate answer. I’ve gotten to that question. I asked that question to every guest. That’s pretty awesome. All right. So before we begin, do you want to give a quick overview of your background for my listeners so they know like who is Russell Gray?

Russell: Yeah, well, I’m you know, I’m really not all that interesting. But you know, I bought my first piece of real estate when I was just barely 19 years old, and started my first business at the same time, and after a year and a half, I sold both. And I made more money on the equity in each of them than both my wife and I made during that year and a half working full time. And so all sudden they realize the power of equity. I went into business and made a lot of mistakes. And I invested and made a lot of mistakes. And then what happened in 1987 is I saw my dad take a startup company in Silicon Valley and take it public. And he was in this lockout period. We started in June of 1987. When October 1987 happened, it was the big stock market crash which up until just a few days ago was the biggest one ever. And when that happened, he lost $12 million and that wiped him out. And I thought how in the world could a guy smart enough to start a high-tech company and take it public be so naive or so ill advised and ended up so wrong footed and unprepared for a crisis? And I realized a few things. Number one is Wall Street’s corrupt. Number two is that their financial education is just horrible. And even smart people don’t know what they’re doing. And so I looked at that, and I thought, man, if I ever get wiped out, you know, I look at my dad…I love my dad, and I respect my dad. I’ve learned a ton from my dad. But that kind of knocked the wind out of his sails, he lost his mojo. And to me, that’s kind of like, you know, it’s like falling off the horse and not being willing to get back on. You know what I mean? And so I said, okay, well, if that ever happens to me, I’m going to make a vow to myself right now at 27 years old. If that ever happens to me, I’m not going to lose my mojo. I’m going to come back. I’m not going to equate my self-worth with my networth. I can go broke and I’ll still be able to bounce back. Little did I know. But you know, in 1995, I read a book called, “Creature from Jekyll Island” and I finally began to understand the corruption of the financial system and how it is rigged against the little guy, and that some of the people who were complaining about the 1%…which I tended to be on the opposite end of the political aisle on actually had a point. And we had a whole lot more in common than we had in difference. And so we were being kept apart. And that’s a whole different discussion. But anyway, I read that book. So in 1999, I decided to start a mortgage company which I launched in 2000. And I thought that it would be a great time based on the investment cycle of the baby-boomer generation as they were moving from equities into blue chips, into bonds. That there’d be a lot of money in bonds, interest rates would come down. There would be a lot of mortgage money to place. We were still in the real estate boom. It just looked like a great place to be. Well, it turned out to be very, very right, right up until 2008. And then Wall Street did it again. And this time, it wiped me out. Now I’m really upset. So we came out of that and started our syndication mentoring program which is how I met you in 2011. As a way to kind of cure the world from this disease, that’s called Wall Street. There’s nothing that Wall Street has done in the last 10 years, that has convinced me that they’re trustworthy in any way, shape or form. Fact is they’ve revealed their corruption on so many levels. It’s almost comical if it wasn’t so tragic in what it does to people. And here we are going through it all over again. And believe me, they’re going to get bailed out all over again. And that’s going to come at the price of inflating the money that, you know, isn’t really money. It’s only currency that people are trying to save. So it’s a long answer, but you know, if you really want to know who I am, I mean, that’s who I am. That’s where I come from. It’s not like a marketing slogan. My passion, you know, to shut down Wall Street is personal, very personal.

Pancham: No, I totally feel that when you say that. No, like you said there is a lot going on in the financial markets. As we talk right now and the world, and I feel like we have so much to talk about, but I want to start with the very basic stuff for now for my listeners, and it’s the difference between the financial system and the economy. 

Russell: Right. 

Pancham: So I see like, you know, it doesn’t matter who the President is. Every president and I know, our current president, President Trump has been always touting about having a great economy until a few days or a few weeks ago. And, you know, there is one thing which is economy and there is the other thing, which is financial system. Can you break it down? Like, what is the difference and what these two things are?


Russell: Yeah, I think most people can relate to it. I spend a lot of time trying to explain this to people, but the simplest way to think of it is if you’re driving down the road, in your car, towards the destination. You’re on the road to riches, and you’re going 75 miles an hour and you feel like you’re making great progress and you’re looking at your speedometer and you know, in your odometer and you feel like okay, I’m doing well, closing the gap. I’ve only got x many miles to go to my, you know… I’m out of the rat race, my retirement, whatever your financial dream is. And you’re making good pace. You’re making good time. Well, what you’re not looking at is your thermostat, your oil pressure gauge and what you don’t realize is that even though your economy is moving down the road, the underlying mechanics, the infrastructure, the system, the vehicle is breaking down. And what happens if you’ve ever had your car break down? It runs until it doesn’t, and sometimes it sputters a little bit before it finally breaks down. Now, some people don’t really know what’s happening and they just chug along in a sputtering economy. Other people realize what’s going on and know how to fix it. It remains to be seen if the United States can figure this out, if the globe can figure it out, but our financial system is broken. Now, it’s no different. You know this. My wife recently died from cancer, and she had it for five years once she was diagnosed. We didn’t even know she had it. So even though she appeared to be healthy, and she was working out and she was fit, and she was trim and she was active, and she felt good, her body was breaking down, it had cancer. And eventually the cancer took over and it killed her. Well, that’s what’s going on right now. So our economy can be booming, it can be active, we can be doing business. We can be cruising down the highway, the road to riches, feeling like everything is fine. If we’re not watching the gauges, or you know, to go back to the health metaphor, if we’re not looking at the…is it an analogy? Think it’s an analogy anyway. So look at the human body, you know. if you’re not looking at your markers, you know, I learned a lot when they were doing all the blood tests. If you’re not looking at the markers, you can appear to be very healthy, but in reality, be very sick. That in my opinion, is what we have and what’s happened now that we’ve been stressed by this coronavirus. The weaknesses, the flaws, the sickness of the financial system are being revealed and they were present way before. I mean coronavirus is going to get blamed for the layman. He’s going to look at it and go, Is it coronavirus? And once the coronavirus is out of the way, it’s going to be back to business as usual. I’m not so sure. Because there were things going on. We’ve talked about this, that the future of money and wealth, you know, two or three years ago, and there were concerns. Peter Schiff has been talking about this since before 2008. He goes like 2008 was just a dress rehearsal for what’s happened, what’s going to happen because the fundamental flaw of the financial system is being exposed. 2008 just revealed it but it’s dealing with it and fixing it. We just kind of doubled down on stupid and went down the road even harder. And so the crash, the real crash that Peter says is coming in may be coming now is potentially going to be a lot worse. So that’s all the doom and gloom. The flip side of it….the flip side of all chaos is opportunity. The flip side of every problem is a solution. The world is going to go on. Humans are going to go on. Needs, wants, desires, goals, objectives for people in businesses, food, shelter, clothing, commerce, entertainment, all of that is going to go on. It’s just that. There may be a substantial restructure in the fundamental systems. The fundamental ecosystem that we all operate in, maybe…not maybe…they’re just going to rebuild it the way it was before and we’re going to get on down the road again and kick the can down the road. I don’t know. You know, which we’re watching it with great interest right now. I obsess over it actually. But inside of all of this chaos is tremendous opportunity if you can keep a cool head. You know, Blair Singer says, when emotions run high, intelligence runs low. Robert Kiyosaki says to see both sides of the coin, you have to stand on the edge. And right now, you know, we can get into the blame game and we can be full of fear and uncertainty and doubt and we can hoard and hunker down or we can stay awake. Stay alert, stay tuned. I’m very happy to have this opportunity to share with you and your audience. And obviously we’re sharing with our audience, just ideas about what’s going on, perspectives from different people who don’t necessarily agree. And rather than saying, oh, you’re right, or you’re wrong, I just want to hear what everybody has to say. And then look at the at the marketplace, look at the landscape and try to figure out how am I going to navigate the obstacles, the boulders, potholes and pitfalls that have been placed on the road to riches in front of me and how can I maintain my personal vehicle as well as you know, deal with whatever the things that are outside of my control. I can’t control what Uncle Sam’s going to do. I can’t control what the international Coalition, the G7…I can’t control what they’re going to do. I can’t control what the banks are going to do. I can’t even control my neighbors are going to do. All I can do is control what I do and what I do in response to what they do. It is to be aware and prepared and to stay emotionally in control and intellectually alert.

Pancham: So no, that’s great. You gave quite a bit of wisdom there. And you know, your analogy of car…you’re cruising in a car at 70 miles per hour, its breaking down and you don’t know it. But you think that everything is good. It’s kind of great analogy. And you mentioned that you have to pay attention to all these gauges while you’re cruising. So make sure that the financial system is good. So what are some of those gauges in the financial system that we have to pay attention to? Make it feel like it’s good versus having a good economy?

Russell: Yeah, well, so that’s a great question. And so you have to understand a little bit about the fundamentals of what makes up a financial system. The first thing is just understanding that when we exchange value for value, we’re no longer using money. We’re using credit. So federal reserve notes are credit. You know, mortgages are credit bonds. Our whole system is credit. Richard Duncan does a great job of this. He does. He calls our current system not capitalism, but credit-ism. And so it’s all credit. So once you understand that, then the fundamental infrastructure, the basis of the entire financial system is the credit market. So 2008 was an example of what happens to the world when credit markets seize up. So in real terms, what does that mean? Well, so if you look at asset values, asset values are like stock prices. Home prices, even the cost of a college education or an automobile, are all factors of credit. That’s why when they lower interest rates, prices go up because people can take their productivity their income, and they can leverage it to a higher purchase price at $300 a month at 6%. On a fully amortized 30-year loan, $300 a month will borrow $50,000. So if two people are competing to buy a home and one person can afford to pay $300 a month more, he can bid that home of $50,000. Well, here’s the thing. That’s great for the seller. And you know, it may or may not be great for the buyer, but he ends up getting the house. So I guess that’s kind of cool. But if that’s a three bedroom, two bath house on Main Street USA, then according to the comparative method of appraisal comps, which I’m sure every real estate investors heard of, or even a homebuyers heard of, every single house that is like that house in a one square mile, and that could be thousands of houses, is deemed to be worth $50,000 more, but that money doesn’t exist. It does not. It wasn’t put into the financial system. It just exists on paper. And so credit creates equity. And so we run around with balance sheet wealth. I was a multi millionaire in 2008. But I did not have passive income. And so when the credit markets collapsed and my equity evaporated, all I was left with was negative cash flow on properties that were either under-rented or not rented at all. And I lost the entire portfolio. I thought I was rich because I measured my wealth in dollars asset minus liabilities equals net worth, and not the way Robert Kiyosaki teaches in terms of passive income. And so the lack of my own personal financial education and I was an educator back then. I was a well read guy. I was a financial strategist, I was somebody that people listened to. And I didn’t know what I was talking about. And so I had to go through that hardship and I spent the last 10 years studying, to try to understand. Now I’m not saying equity is bad. We love equity but equity should be a function of cash flow. And so the financial system is based on credit, and it’s based on a relationship between credit and asset values and incomes. To stretch an income further you have to take on the burden of debt. That’s why they have been lowering interest rates for over 40 years to continue to keep the credit bubble going. It hit the zero bound and bounced off of it for seven years. They couldn’t get off the mat. Finally they inched up a little bit and guess what? They couldn’t keep it up. Forget the coronavirus. Forget the coronavirus. So, the interest rates, the lack of interest rates was one of the indicators. The inability of interest rates to rise to a healthy level. Which means that healthy means that attract savings. People are not incentivized. Savings is the difference between production and consumption. If you over-produce in an economy and under-consume, you create abundance. Abundance is wealth and it makes everything more affordable for everybody. Right? So, you know, that’s what they call inflation or deflation but of course the metric they use…So to answer your question, you know, in simple terms, one of the things we look at is the health of the credit market. One of the things we look at is the interest rates. One of the things we look at is the currency and the health of the currency. Well, how do you know what the health of the currency is? Gold? Gold is the inverse of the dollar. And so if gold is performing well, the dollar is performing poorly. But it’s not just the dollar. Its currencies worldwide. Right now, currencies against gold are at all-time lows, or gold is an all time highs against every currency in the world except one, the US dollar. And so the US dollar is a whole study in itself. And if we have time, maybe we can talk about that. But these are all the things that you start to look at. And right now there’s a disconnect because gold is up and silver is down, oil is down. And you think, well, gosh, if that’s inflation, silver should be up and oil should be up but that’s not happening. And so Jim Richards says gold is a chameleon. And what he’s saying is that sometimes gold acts like money which is what it’s doing right now and it preserves purchasing power or it acts like a commodity. So silver’s acting like a commodity right now. Meaning that because production is going down, and it’s used in all kinds of production. Because production is going down, the bid on silver is going down, because people expect there to be less demand going forward. But gold has stayed relatively strong, and on many days goes up when silver goes down. So gold is behaving like money, a safe haven. People are going there to preserve. Well, that’s a clue. That’s a clue about what smart people are thinking about where safety is. And so there’s a lot there and I spend, you know, probably way more time than I should thinking about all this stuff. But to me, watching those gauges is how you navigate, you know. You can’t just fly your financial vehicle looking out the window, you know. Professional pilot flies by the gauges. Professional investor needs to fly by the gauges, both the ones in their portfolio. But also the ones in the economy and the financial system.


Pancham: Right now, you mentioned a lot of points there and a couple of things that I want to mention. And it’s good for the listeners as well that, you know, to understand what Russ just explained. It’s actually a full study in itself. And one book that really helped me and you alluded to it that you read in 1995, The Creature from Jekyll Island. if you read that book, which is a very heavy read, in my opinion, you would be able to understand some of the things that Russ was talking about. And we you can go back to show number 16 and listen to G. Edward Griffin. And when we talk about some of these things that Russ is talking about here, and Russ, you mentioned an amazing thing, like amazing example of what you had in 2008 – networth. Rich but you were cashflow poor. Right? And a lot of my listener-base are in a similar situation, I believe. Yes, they do have a great cash flow from their jobs, which is not passive cash flow, passive income. It’s the active income, but worse at single point failure. It’s a single lot of failure. And the second thing is that a lot of my listener base are engineers that work for these high tech companies and their income and also their net worth in most cases is tied to most cases in stock of one company. And if people are diversified in the stock market, at the end of the day, it’s all net worth which there is very little dividend whatsoever that’s left from the stock market. So what would you say, like based on your experience in 2010, based on where we are today, and we are seeing something very similar happening as we speak. For the people who do not have passive income, what would you suggest to them?


Russell: Well, I mean, so I learned a lot and I have a philosophy. I call it strategic real asset investing. It’s a different approach to building a portfolio and it came out of me sitting down and asking myself after 2008 knowing what I know now, what would I have done differently and why. So I was familiar through a little bit of background in the traditional financial services industry with, you know, basic portfolio theory. It’s what led me to get into the mortgage business because I knew asset allocation. As baby boomers age, they would gravitate more towards bonds from stocks, and that that would create demand. And you know, as I explained earlier, but see the problem with those pie charts and those asset allocations in those rebalancing, you know. If you take the three basic core assets in the traditional model, you have stocks, bonds, and cash. And so you use cash for liquidity and you hide in cash when you think that there’s going to be trauma. And then you use bonds, typically for income preservation of capital which is also why bonds tend to catch a bid when people get spooked about long term growth prospects. And ultimately, especially when you’re younger, conventional wisdom is you should have a chunk of your wealth in equities stocks, investing for the long term in the growth of the economy and obviously leveraging or hedging against inflation. That’s the traditional model. The problem is, is they’re all paper assets. They’re all gambling chips in the casinos of Wall Street. They’re all easily manipulated by people in powers that you maybe can’t even see and certainly can’t control and probably don’t fully understand. And you know, the thing is, and then and then you’re convinced because of your net worth, that you’re rich when you really haven’t built any real income because bond yields are terrible right now. Yeah, so the ultimate investment is real estate. And the reason is, is because you’re hedged against inflation. You’re hedged against deflation. You are generating yields that are higher, especially when you net them out with the tax breaks and almost anything else you can get that’s conservatively structured. And your internal rate of return when you factor in amortization which is the pay down of the loan cash flow, which is you know, the income minus expenses equals positive cash flow. There’s a return there, the multiplier of the asset equity, you know. If you put 25% down on a property, you control for parts of property with only one part of equity. You own a million dollar property and it goes up 10%, it goes up $100,000. So each part goes up $25,000 but the bank or whoever the lender is that provided 75% or $750,000, they don’t get the $75,000. All that goes to the equity and that’s you – the 25,000. So a 5% move in real estate in terms of appreciation is actually four to one, a 20% equity growth rate for you. Now, again, you don’t count that from the standpoint of that’s money in the bank because it’s not. Yeah, it’s equity comes, equity goes. But if you’re going to compare, you know, total return or internal rate of return, you know, tax breaks, income, amortization and appreciation with leverage. It is really, really, really hard to beat real estate. And the reason I say you’re hedged against inflation and deflation is, you’re using debt. So if you get inflation, you know, you’ve locked in the cost of the dollar and the price of the property goes up, rents tend to go up in a truly inflationary environment. And if you get deflation and prices go down, you know, as long as it doesn’t go down so far that your rents come down to where you lose control of the mortgage, then eventually that mortgage will be paid off. So if you put $25,000 down on $100,000 property, and just hold on to it, and even if the property drops in value to $50,000, and it stays there for forever. It never ever comes back. As long as you keep the tenants in it and they eventually pay that mortgage off, you will have a $50,000 home that’s paid for. Which means you doubled your money, even in a deflationary environment. There’s no other investment on earth that does that. Now, that doesn’t mean that every piece of property in every single place is going to work. That’s not true, because markets and demographics matter. So really estate is not, you know, for uneducated, completely passive investor just to go buy and forget. It doesn’t work that way. Either you need to learn how to play the game, or you find someone who knows how to do it well and through a syndication, private placement, you invest with them. And that’s a whole different discussion. But that’s that’s one part of it as terms of the actual investment, a way to accumulate passive income. But there’s responsibilities that come with owning property. Now, if you do it through syndication, you alleviate some of those responsibilities, both financial and also, you know, in terms of your need manage it. But if you want to have income without the responsibility, then you can lend against real estate. The income, even on mortgages today on a private mortgage is 5% or 6%. Compare that to a CD or a bond where you might be getting one, you know. That’s five times the income and you’re backed up by a piece of collateral versus so you don’t have the same level of counterparty risk that you If you buy a CD, or a bond of any type. So you know, that’s a way so you can have both debt, you know. The equivalent in a portfolio to a traditional structured portfolio would be real estate on the equity side like stocks, and then mortgages on the debt side like bonds. And then you take your cash component and you divide that up between currency dollars and precious metals. And I could go on to a whole rant about that. And then I can talk about the rings of risk and how you build a base and work out so I have a completely different way of approaching portfolio theory for real assets and I don’t even consider stocks, bonds, you know as an investment in fact. I don’t consider precious metals as an investment. I don’t buy them as a vehicle to try to create dollars. I’m not a believer in the buy low, sell high methodology. I’ll take it if the market gives it to me, but that’s not my primary investment strategy. Primary investment strategy is to preserve purchasing power and generate income. And then I calculate my net worth the same way you would calculate the value of an apartment building by dividing the income by the going rate, and then figuring out what my capital structure. However much debt, I don’t care debt and equity doesn’t matter. If I’ve got $100,000 a year of passive income coming in, and I say the going rate in the market is 5%, then I know I have $2 million, what I would consider to be a $2 million net worth. It’s real. Now that might have nothing to do with my balance sheet and what I would turn into a bank for a loan, but for managing my own portfolio, that’s how I measure success today.

Pancham: That’s great. So many good, golden nuggets there. I got to ask you, what are you doing today, given what’s happening. Like it’s very hard to talk to investors like I’m talking to a lot of my investors and also my friends, my family, everyone is very, very fearful because of the environment that has been created by this coronavirus situation. And we have multitude of many, many…currency creation is happening as we speak. And we are having these helicopter drops that have started which was unthinkable 20 years ago, even 10 years ago, but now it’s happening given the environment we are in right now. What are your thoughts around number one, that it’s happening because of the big financial system that we had and coronavirus has just the just the pin that picks that pick the entire public? And second, how should we prepare for what’s coming in the next 6 to 8 months to 12 months?

Russell: Yeah, so anybody listening to this and all of us probably fall into in broad strokes in one of two categories. Either we have been aware and prepared or preparing. Or we have been completely asleep at the wheel and we’ve been caught flat-footed. For the people who are, you know, aware and prepared, they probably already own some precious metals as a hedge against the collapsing dollar which could happen based on what’s happening. Looks like the Fed is willing to sacrifice the dollar in order to try to save the system. I don’t think it’s going to work. But it’s just a question of how long will it last. It could last a year, it could last two years, or it could last 10 years. It could last 20 years. I don’t know. But you know, it’s just hard to look at what they’re doing. And they can get into the details of what they’re doing and why that’s true if we have time, but it’s hard to look at that. I do not think that the dollar is going to be in trouble. So you have to have someplace where you can preserve liquid purchasing power. Now there is an opportunity, I think in today’s precious metal market because of the disconnect between silver and gold silver right now. It’s like 125 or 117 to one to gold. Meaning that gold – I mean that’s unprecedented. It hasn’t been like this for over 5000 years since we’ve had that kind of a ratio. Either gold is horrifically overpriced which I don’t think is the case, because it hasn’t even hit its all-time high yet, or gold or silver is really undervalued. And I think that’s the case. And here’s the thing that’s going on in the marketplace right now. There’s a lot of debt, a lot of margin when you have a low-yield environment caused by suppressed interest rates by Federal Reserve and central bank policy around the world for a long time, then people in the markets in order to find yield, use leverage. If I can buy a 1% bond and leverage that thing up 20 to one, I can get a 20% yield on my cash. But if that thing cuts the other way, I’m wiped out. And the problem is, unlike real estate, where if you buy $100,000 house and it goes down to $50,000, you’re not forced to post any additional collateral. You’re not forced to restructure. There’s no margin call. But the way the Wall Street boys play, there are margin calls, and there’s a lot of debt out there that’s hypothecated or margin sold, you know, owned by more than one person because there’s a lot of claims on it because at the day when the margin call comes, they have to post cash. Which means that the asset that they secured is bad. That’s why they have the margin call. So they can’t sell that. That’s the problem. So what is left to sell the stuff? That’s good. So what happens in a market like this is great assets go on sale. Not because they’re bad, but because people who own them are wrong-footed for what just happened. And there’s a lot of that right now. And they’re going to sell that at the institutional level. And so you can take advantage of things like that when you see this big disconnect like we see between gold and silver or gold and oil. Gold will buy more silver and more oil now than in most of human history. I mean, it’s crazy. So that makes either gold super-overpriced or silver and oil really under-priced. Silver could quadruple from where it is right now and still not hit its all time high. That’s how low it is. So you know, you might consider that now the problem is the world has figured that out. And now real physical silver is back-ordered everywhere, and dealer premiums are jacking the price up considerably over spot. And so that’s just a reflection of shortage, you know. So there’s some of that going on. It’s still possible to tap into these low interest rates because what happens is people flee into bonds at the institutional level, and the Fed has stepped up and lowered interest rates, which means they’re stepping into the market buying bonds. And what happens when that happens is everybody tries to front run the Fed and they buy bonds and the bid on bonds drives bond values up which drives bond yields down and that typically gets reflected in mortgage interest rates. Now we’ve had record low interest rates and we’ve been saying on our show for quite some time, now is the time to go harvest that equity, pull it out at record lows, take advantage of this temporary situation to lock in long term rates and be sitting on some cash. So having some liquidity in a crisis is good. So you might look at your portfolio and say, where can I tap into low interest rates where I would be able to, you know, reasonably afford the debt service or acquire an asset that would provide the debt service, which, of course, is what real estate does. Or you could arbitrage where you borrow out at 3% and make a loan, a private loan at 6%. So if I borrow $300,000, I’m going to use round numbers. Let’s say I borrow $500,000 of our $500,000 out of whatever I have available. And I borrow it at 3%. I take 250 of it, and I go out and I purchased 5, 6 mortgages. Now I have enough cash flow coming in on $250,000 deployed on 6% mortgages to cover the entire payment of the $500,000 and I have $250,000 of investable cash with no payment associated to it. Now I’m liquid and I can afford to go shopping. We’ve been telling people for two years to get into this position, because we knew this day was coming. We didn’t know when we didn’t know why. We didn’t know how bad but history said it was coming. The indicators were saying it was coming. So look around and see where you can get liquid. And then of course, you know, get connected and start watching the marketplace and looking for bargains and opportunities and just learn to understand the difference between a failing asset and a distressed asset. A failing asset is something that is obsolete, it’s never coming back. Right? I wouldn’t be out there running an eight, you know, investing in eight track cassette companies because they’re cheap, you know. What you want to do is go get core essential things that are real, that are essential to human existence, and that are located in great markets, great niches that where you can pick them up at a bargain. And, you know, and then just, you know, be prepared to go shopping. So I think the other thing is, if you’re late to the party, good on you to be listening to this double down, triple down, quadruple down on your education. There’s a lot to learn in a short period of time. Everything is moving very, very quickly. Yeah? Get plugged into people who are already paying attention. Those people that you thought were lunatics who were telling you the stock market will crash and that you should own gold or and all the people that you know were saying those things that you thought were crazy. You know, Peter Schiff is a real popular guy right now, No, no TV or radio show would give him the time of day except for folks like us for the last probably eight, nine years. And now all sudden, He’s Mr. Popular, because he’s been telling everybody this day was coming. And people like to laugh at him. You know, see all you’re like a broken clock. You’re eventually going to be right. Well, yeah, eventually he said is right. But he’s right for the right reasons. It’s not like he’s guessing. He’s not throwing a dart at the wall. He’s not saying oh, what goes up must come down. No, there’s fundamental reasons why he believes what he believes. There’s reasons why this is happening. So invest in that education is probably the first place to start.

Pancham: Great. No, I totally resonate with that. Like this is it’s how you look at this particular situation whether you can look at it as a opportunity or, you know, not an opportunity and I would say invest input and education is a great way to spend time when you’re uncertain or you don’t want to, you feel paralyzed by the situation. I would say investing in yourself always pays off 10 times or more. Great. So Russ, any other thoughts on this before we move on to our next section of the show?

Russell: Well, I mean, you know, I could go on and on about the whole thing. I, you know, again, I’m just going encourage people stay calm. It’s not the end of the world even if it’s the end of the financial system, stay calm, stay connected to people who are calm who are rational, who are thoughtful, who are well studied. Think, trust your own judgment, learn to trust your own judgment, because if you try to follow the herd, the herd mostly gets it wrong in times like this, you have to be willing to swim across the, you know, against the stream a little bit. Warren Buffett says when, you know, people are fearful, be greedy. And when people are greedy, be fearful. Well, we just came out of a greedy period and smart people were fearful of getting in position. And now people are fearful. This is the time where you have a lot of opportunity if you can stay calm. If you either got in position or can quickly get in position or can get connected to people who were in position and then you can add some value. You know, we spend a lot of time teaching syndicators how to do that. These are people that have, you know, gone out and are willing to do the hard work of turning over rocks and are looking for deals and putting deals together. And you know, if you have more money than time or expertise, look for one of these people to invest with who have a good track record that have good integrity and good capacity and are willing to work with you and you get along with. It’s far better than just, you know, buy and hold and trust the long term and write it out in Wall Street. My opinion, Wall Street’s not trustworthy. They lie to you to get you to leave your money in their casino so they can play with it. They can gamble with it.


Pancham: Thank you. Thank you for sharing that. We’ll be back after this message. Have you ever wondered why the rich keep getting richer? What is the secret that they know about? But you do not what if I told you that wealthy people make their money work for them into different places? Yes, the same dollars invested into different places and working hard for them while they sleep. They utilize the special accounts that have been in existence for more than 100 years. Do you want to learn more about these accounts? Then you are in the right place. Listen to the episode number five by going to I repeat or visit So let’s move on to the next section of the show which I call Taking the Leap round. I asked these four questions to every guest on my show. So Ross, my first question is when was the first time you invested outside of Wall Street? Was it that when you were 19 years old and you bought your first property? Would you say that was the first time?

Russell: Yeah, well, I mean, I never really got that active in Wall Street. I was 27 years old when I saw my dad get wiped out. And that’s when I was first getting started. In fact, I was a registered representative. I was a securities salesman, I sold mutual funds at the time. So I was part of the problem. As soon as I saw what happened and realize that I didn’t know what I was talking about, and I had no business giving anybody, anything that remotely smacked of financial guidance, much less advice, I quit. And I just focused on real estate, I focused on business, I focused on my education, and I didn’t come out of that hole until 2000. I spent most of my time I did for a back one more time into Wall Street because I thought maybe I could I could learn to play the game by day trading. And I kind of got living in Silicon Valley at the time, got caught up in Boom. And you know, when you’re day traders, a lot of day traders out there right now that we’re trading in a bull market, and they think they were geniuses. Today, you know, they’re finding out it’s a lot harder, you can still make money in a down market as a trader, if you know what you’re doing. But it’s a job, it’s not investing. And it’s more gambling than it is investing. So I focused on business and then ultimately got back into the whole serious real estate game in 2018. I never was a big fan of Wall Street never have been.

Pancham: Okay, great. So my second question is what fears? And this might be different for you? What fears did you have to overcome when you first invested outside of Wall Street? So for you, you were 19 when you bought your first house and 27 years old, your dad like would you said you do have any fears?

Russell: Um, I think my biggest problem is I didn’t have enough fears. I think so. You know, I’m a big fan of Sam Zell who said his one of his greatest strengths is his ability to see the downside, and move forward. You know, I didn’t understand things like SWOT analysis, strengths, weaknesses, opportunities and threats. I could see all the strengths and I could see all the opportunities but I discounted weaknesses and threats, I overestimated my ability to mitigate and navigate. So you know, to me, the biggest fear was my own ignorance. Really what happened? The bigger thing for me was after having gotten No hit and wiped out. It was really the courage to get back on the horse. And to do that, I decided that I would focus on building a very solid conservative base operate on. And I would not deviate from that no matter how good an opportunity came my way. I was not going to sacrifice the foundation to build a second story of the structure. I would focus on building on a solid foundation, feeling like it would grow exponentially if I built a solid base. It’s true in business. And I think it’s true in your portfolio as well. So my biggest fear was being impatient. My biggest mistake was being impatient.

Pancham: Got it? All right. Thank you for sharing that. Can you share with us one investment that did not go as expected?


Russell: Yeah, you know, Oh, gosh. I think you know we did. I’m just going to pick one out of it. We did an apartment building once, and it was 150 units, and we bought it and we were aggregating it from a guy. Well, we didn’t aggregate heat aggregated, I think 11 buildings all on one block, but he operated is one big apartment building. So it’s a bunch of eights and twelves. And, you know, fives in each individual building like worth more if we sold it by itself, but it didn’t operate as well. So we came up with this brilliant idea that we would sell them off to individual investors, we would keep the largest building for our and then we would operate the thing of as a co op, so still continue to operate as a single apartment building with a single brand and a single management structure. And even more, we would pull all our rents together to mitigate vacancy loss because you know, we kind of spread the risk we do so it was like a syndication even though going owners but we syndicated the risk of vacancy because obviously if you own a five unit building, and you have One vacancy or 20%, vacant, right? Whereas the entire complex might only be 5% vacant. So the big, big, big, big, big, big, big mistake we made was that we turned the management over to one of the individual building owners and put him into that. He was completely inexperienced, and ultimately, to be completely uncoachable. And he ran the thing into the ground and we owned the biggest building, we took the biggest hit, and we had abrogated control of the structure. So it turned out well it look good on paper in the real world. The big mistake and this is a mistake any real estate investor, any passive investor can make was betting on the wrong manager. Right. So you know, and that can be true in a mutual fund that can be true in a company when you bet on the wrong CEO. That can be true on an apartment building. If you hire a bad property manager. It can be true in a syndication if you hire a bad or if you invest with a bad sponsor. It’s really the investment wasn’t bad. People were bad. And so the biggest mistakes I’ve ever made almost across the board have been people problems, either me or somebody, ultimately, it all comes back to me because I made the decisions. But yeah, I’d say that there’s a lot of lessons in that I could do a whole clinic just on that one deal.

Pancham: No, thank you so much for sharing that I always say and a lot of our friends that it’s always feedback here. These are lessons that you learn from and not failures. You get feedback from these and you learn a lot pickier about people now, as you know. All right. My final question here is what is one piece of advice would you give to people who are thinking of investing in main street that is outside of Wall Street?

Russell: Well, one piece of advice. Well, first thing I’d say welcome. Next piece of advice. I say do it. I mean, do it as in don’t just do it for yourself. I mean, that’s the obvious reason to do it. But do it, do it for the good of society. Do it for when you make investments in Main Street, you’re directly benefiting a community. You’re doing something very specifically for a community. It’s like the difference between doing business with a community bank, or one of the big national or international banks. I’m just a big believer in community. Now, sometimes communities are a geographic community. Sometimes it’s a demographic community. Thankfully with technology, we can build demographic communities. But here’s the thing, when you send your money to Wall Street, you’re giving it to a bunch of people that have a gambling mentality that are largely sociopathic, they really don’t care. They’ve been given a green light by the regulators and the authorities to take an ordinate amount of risks because there’s either implied or overt bail out. And so there’s a lot of moral hazard. And all they do is skim. And then maybe you get back a much smaller percentage, those big buildings, those fancy ads, those huge ones…Wall Street salaries that we hear about, the jet set life. What do you think all that money comes from? It comes from Main Street, those guys aren’t doing any real work. The people that are actually making things and building things and growing things and serving, that all happens on Main Street. And when you take your savings as being one of those people, you help your neighbors…people right next door to you. The more you help when you invest in a local community bank, if you’re going to do your banking, when you invest in a syndicator, or a private placement, somebody, you do a little infill project and build an apartment building or a little shopping center in a corner, a school, you know. A private school or something that’s going to serve the community, you’re doing a real good thing. And it’s flat. You’re dealing typically directly with a deal or directly with the person who’s managing the deal. And it’s a human relationship. And I could go on and on. But you know, long answer to a short question. I just didn’t want to say do it. Like I’m a cheerleader. But there’s a rationale behind why I believe that it was so much passion. And if you look at it the way I look at it, I think you’ll come to the same conclusion. There’s really not that much to be gained by going to Wall Street except “convenience” and at what price? I think right now the world is saying the price is way too high.

Pancham: Right now, thank you. Thank you for sharing that. How can listeners reach you if they want to get in touch with you or hear from you?

Yeah, well, I mean, obviously I have a lot to say but I’m not in a position to you know really take phone calls and talk with people one on one as you might imagine. I get bazillions of those requests. But you know, we have our radio show. I’m pretty sure that’s how you heard about us but is our website. You know, the real estate guys can find us on iTunes, Stitcher, Android, IHeart Radio, Spotify. You know anywhere, but we bang out a weekly show. We talk about all things, you know related to investing in real assets. Obviously, our emphasis is on real estate. But before you’re an investor or a real estate investor, you’re an investor to understand real estate really in context, you do have to understand credit markets and energy and precious metals and currencies. So we talk about all that stuff when we talk about international. So to us real estate investing is a lot more than little greenhouses or even big red hotels. It’s a big, big world and a lot of fun to talk about. We’ve been at it for 23 years, and still going strong. So we’d love to have you join our audience. Because the more you hear from people like us and Pancham, and other people out there that are doing a great job sharing their ideas, the quicker you’re going to grow, learn the lingo and gain the perspectives, you need to stand on the edge.  See, you know, both sides so you make better decisions for yourself and your personal portfolio.

Pancham: Thank you. Thank you so much for the listeners. You know, I would tell you that whenever you get the opportunity to tune in to that show. I started listening to that show. I don’t even remember how long back – probably 2013 or 14. And it has changed my life in a way and Russ and Rob are great guys and you will learn a ton from that. Thank you, Russ for your time today.

Russell: Thanks for having me and letting me ramble so much, Pancham. 

Pancham: Thank you. Thank you for being on the show.

Thank you for listening to the gold color investor podcast. If you love what you’ve heard and you want more of Pancham Gupta, visit us at and follow us on Facebook at The Gold Collar Investor. The information on this podcast are opinions as always. Please consult your own financial team before investing

Show #32 - Russel Gray - Episode Art

Leave a Reply

Your email address will not be published. Required fields are marked *