Chris Macintosh Investment Strategies
Chris, founder of Capitalist Exploits – one of our affiliate programs – provides professional insights on a huge range of topics, from oil to real estate investing.
This interview is part of a two-hour session we had about the macroeconomic and investing landscape today. We talk about the geopolitical tensions, futures, energy, coal, uranium, and profitable countries to invest in, with a special focus on Dubai.
Great read…as always. https://t.co/j3hyjQOT1w
— Capitalist Exploits (@capitalistexp) June 19, 2020
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The Scarce Demand For Oil
George Gammon: I know a lot of people are tuning into this video to hear your thoughts on what to invest in, how to set up a portfolio, what's going up, what's going down.
You've brought up oil before. And I know that's something that's really on everyone's mind.
So let's start there. And I've actually got your most recent insider weekly report. So for those of my viewers who don't know, Chris is a hedge fund manager, but he also does fantastic research. He's got a product called Insider, and we're an affiliate.
So if you want to go to GeorgeGammon.com and check it out, it's at the recommended resources page. But I'm reading from your last Insider weekly, which is kind of a less dense version of Insider or Capitalist exploits Insider.
So the last one that I have in front of me, you talked about something specific. So I want to dive into that and get your feedback on what you wrote.
But starting with oil, I see that you talked about Dutch Shell, which I really want to go into.
But I did a video on oil the other day, where, again, I went back like Jim Rogers, and I looked at some.
Unfortunately, I just went back to the 1950s with the chart that I had. But I saw that we actually had an oil go down in real terms from 1950 to 1970.
And then of course, in the 1970s, 1980, it went up dramatically. But I noticed one thing that would trigger the next move up, from 1970, all the way to call it 2012, was when you would have a crash in the stock market or asset prices.
George Gammon: So I did some reading on that, and I saw a lot of experts say that's because if you have like a 60% down move in stocks or strictly financial assets, that people say, “Okay, I'm done with those.
I want something real. I want something tangible like commodities or like oil.”
So the first thing I wanted to ask you is:
If we assume that we're not going to all new highs in the stock market, and we're going to revisit the lows because of the virus or what have you, and that asset prices are going to go down in nominal terms over the next year or two years…
Do you think that could be a catalyst to also drive commodity prices higher, more specifically oil?
Chris: I'm going to take oil and put it a little bit to the side. In so far as oil's been through. What's happening right now is really unique, right?
Where the Saudis and the Russians are having a fistfight, and trying to gain market share in the face of a world that is not driving.
So that's a truly unique setup which we've never really seen before. To the extent where, as you know, we went negative on oil, a couple of months or so back.
You'd ask yourself, how's it possible to be negative on anything that's actually got a real.
There's been that saying, “I have a lot of gold bags,” for example, saying, “Oh, gold can never go to zero” and you could say the same of beef cattle.
Well, they can. Even in the physical market, think about what we were talking about before, with respect to farmers who their supply chain is now considered non-essential, right?
So there was supplying, maybe a hotel, and the hotel is shut down, so they have just slaughtered their beef cattle.
Chris: There's a cost to that because nobody wants it. They don't have any demand for it. There is a cost to actually getting rid of the cattle.
If they weren't going to shoot them and burn them or bury them, they would have to pay somebody to take them away, and that's essentially what's happened in the oil market.
George Gammon: Or housing in Detroit is another good example, where at a time, they're literally giving houses away. Well, how is that?
Because you got to still pay the property taxes and the upkeep.
Chris: Upkeep, yeah.
Commodities will have that sort of tangible value, but they can go negative, clearly, in certain environments.
So, to your point on the stock market, and how things go with booms and busts there, there's a dynamic in terms of risk.
Now, financial assets in a risk environment are always wonderful to own. Typically, because you can get better-operating margins. You want to be owning financial assets in a boom, even in a crackup boom, which is fueled by silly money from the Fed or whoever.
So, that's really one reason that I'm not prepared to re-short the market. Look, the market's fantastically overvalued, I mean, we're what?
A few percent off the highs, and the world's been shut down? It's just absurd.
But, there are those other components where it could potentially be a relative basis because everyone's going, “Well, hang on a second. The Fed is probably just going to do everything that they can do. They're going to bring the kitchen sink to this.”
Supply Chains Coming Under Pressure
Chris: They probably will, but potentially, there's some period of time where the market corrects. I don't feel like I have an edge there, so I prefer not to play.
I know that it's overvalued, but there are many things that can impact that. But back to the point on oil, what's taking place now is extraordinary supply destruction, to an extent that I've never seen in my career.
This has never happened before. Mexico is basically screwed, Nigeria is screwed.
Entire countries and economies are shutting down production because they can't operate at these levels, and it's not possible to just turn those taps back on.
Oil markets don't work like that, once you shut a well, it's not that easy.
Shale's a little bit easier than other energy markets, but the point is, there's massive supply destruction taking place. We have a glut that's largely priced. So we are setting up for one of the most phenomenal oil booms, I think, that we're ever going to see in our lifetime.
Now, that could well take quite some time. But talking about Jim Rogers, you buy when they are giving it away. That's when you buy things, and they're giving it away.
Think about it like this. All that we've discussed with respect to like UBI, the debts, all of these factors. Tell me, what would you rather have in 10 years time?
You could have been paid to take a barrel of oil, or let’s just make it easy, you could have bought it for a dollar.
Would you rather have a barrel of oil in 10 years time, or would you rather have a dollar? It's that's simple.
I know where I'm going to play my chips, and that's without even considering the geopolitical setup that is very, very quickly gaining fricking, off the rails, whereby trade agreements are being shattered, whereby supply chains are coming under pressure.
Chris: We just saw it with the Chinese and the Australians, where the Australians asked the Chinese for an independent inquiry into this virus, they came out and about, and so on, and they've now been backed by, I think, 89 countries.
China turned around and put an 80% tariff on Australia and Bali, so, these sorts of things, again, are not necessarily always about the actual supply to the oil crisis.
It wasn't about supply, it was about the access to supply.
It was about the movement of those goods from one place to another, which we've experienced that since Bretton Woods, everybody's taken it for granted, that moving shit around the world is just easy.
“Oh, you want to buy something? Go to Amazon, buy it, and where do you live? Oh, you live there? It doesn't matter. They'll get it delivered. UPS will deliver it.” It wasn't a problem.
So, we've become very, very complacent around supply chains. We've become extraordinarily complacent around our energy security, and none of that is priced.
Is Oil An Additional Demand Component?
George Gammon: Yeah. I noticed going back to that chart where I was looking at oil, the two bull markets, the 1970s, and then the one that started around '98 or 2000, right around there.
Both of them were kind of triggered at the beginning by some sort of geopolitical event, and that really kind of kicked things off. That was the spark of that added fuel to the fire.
One thing I was thinking about the other day on the topic of oil, and I'd like to get your feedback on this, to see if you think this might be an additional demand component, not now, but maybe longer term in the future.
Or just tell me if I'm crazy, I definitely could fall into that bucket as well.
But China is a net importer of oil, is that correct?
Chris: Yes.
George Gammon: Okay. So if I'm China, and I know that my goal is to have this rural economy go into the urban area, and then to expand into Africa and South America and all these different places, that requires energy.
And as of right now, the most dense form of energy is oil, which has the densest energy component to it.
Chris: Or nuclear, actually.
George Gammon: Oh, is it nuclear? Okay.
So oil has a very high density there, as far as the energy component, especially when you look at its price compared to how much energy you get per barrel of oil.
So if I'm China and I'm like, “Okay, I need a dollar-denominated asset because I've got to pay, I need dollars, It's the world reserve currency”…
And we were supplying all these goods to the United States, your point that may go down in the future, but right now, we were getting a lot of these green dollars and we're sending the United States a lot of our manufacturing.
Currently, we're buying treasuries, a lot of those, but let's just say that the yields on treasuries go negative. Let's say they go down to like a negative one or negative two, something like that.
If I'm China, now I've got a negative carry on my dollar-denominated assets. So then, maybe you want to go to cash.
Oil As An Alternative To Stabilize Currency
George Gammon:
But could another alternative potentially be going to oil? Because oil is definitely something you're going to need, longterm?
You can get it now at half of the cost of production and it's a dollar-denominated asset.
And I know it's got storage costs and whatnot, but if you're a huge country, I'm sure that you could somehow build some sort of way to store it.
That would most likely be cheaper than the negative carry you would have on a treasury at negative one or 2%. What do you think about that?
Makes a lot of sense, George. I do know that there's been a lot of talk around the Chinese dumping, treasuries, and things of that nature but the reality is that's unlikely because they need dollars in order to purchase all of these goods that they are reliant on.
So, as we know, they are reliant on obtaining energy from external sources so, in order to do that, they need dollars.
I can't remember the number, I've got it sitting out somewhere but it's a very, very small amount of trade that's actually done in renminbi. Other countries are not prepared to trade in the Renminbi.
Chris: The idea that the Chinese are going to dump treasuries rests on the idea that they would literally shoot themselves in the foot, in terms of having the nation supplied with goods and services that they have to have to operate.
So I don't see that as a high probability, but your point of essentially securing things that they will need, for sure, and which would have a relatively better return on capital makes a lot of sense.
We don't know for sure the numbers, but in 2019 from what we can tell, from the numbers that are being presented.
Again, any numbers out of China are to be treated with a certain amount of skepticism, they were already building their strategic gold reserves, and filling them up.
I suspect they're full to the brim now.
I think, given the extraordinary set up with oil today, they're probably fully loaded, but they may be looking to do similar things outside of oil.
Because the other component behind this, and it's one that I've grappled with, is assets that countries own outside of their own borders can quite quickly come into question as to, “Do you really own them?”
So for example, Venezuela just recently tried to get a billion dollars worth of their gold from the UK and they got blocked.
You could tell it was their gold, It's Maduro's gold but there are sanctions on the country and all.
So they've just said, “No, you can't. It's not yours you can't have it, you're an illegitimate leader” And they're right in their latest rants, but it doesn't really matter whether they're right or wrong.
Chris: The point is that, that sort of world is coming at us really quickly and if I were China for example, and I was looking at all these assets that are owned in other countries, given how they are now reacting for example to inquiries about the coronavirus and such, they’re rather belligerent.
So, those can quite quickly become used as weapons, right?
We saw that after 9/11, where if you had middle Eastern money and you had it in US banks, there was a massive sucking sound coming because a lot of those middle Eastern investors and whoever.
And some of them were probably crooks and some of them weren't, who knows? But they all pulled their money out because there were accounts being frozen, right?
Effects Of The Increasing Geopolitical Tension
Chris: Which incidentally actually landed up being one of the reasons that Dubai boomed to the extent that it did, because there was all this capital influx, and Dubai is one of the places it's treated as sort of “the Switzerland” within the middle East.
Anyway, there are likely to be capital flows around the world as this geopolitical tension increases.
And really, what you're looking at is new allies being formed, new relationships being built between countries, between industries and it's going to be a chaotic volatile period of time. But it's one that we have and we have to deal with it, and we've got to do our damnedest at doing so.
But in that kind of environment, fixed assets and things like real estate become more problematic. You're a US citizen, right?
So you let's say you bought a property in Shanghai, tit for tat, you might just find that it's not yours anymore and you're not your government but it doesn't matter.
So those are things that I think investors are going to have to start thinking about.
George Gammon: I want to ask you about that, that's a very interesting take.
What about, if I'm a real estate investor, let's say in Los Angeles or Vancouver, Canada, even more so, and I know that the market there has been propped up by a lot of Chinese money coming in and I hear Chris Macintosh say these things.
The first thing that comes to my mind is, wait a minute, maybe the United States is going to get very defensive against China and they're going to restrict Chinese coming in and actually buying assets.
They're going to go back to, let's say the Japanese in the 1980s coming in and buying all this stuff in New York, and Pebble Beach and whatnot, and they're going to put a stop to it.
Could that dampen demand in some of these areas with Chinese money coming in, in the real estate market, just as easily?
My question is:
Could the United States do that just as easily as China could, from a standpoint of real estate, or any other asset that could be owned by an individual that isn't national?
Chris:
I think on a geopolitical basis it's inevitable, I also think on a national basis, it's inevitable that some of these assets are going to be taxed.
So there's a lot of different factors coming in there, for example, California is a good one because they broke.
They're going to go after anybody with money and remember we talked about the inequality that's taking place?
Think about Silicon Valley, these largely have benefited in this environment, relative to other States and call it economies within the States that have been shut down and told that they're not essential.
But the Zooms of the world and the tech players still can operate because they live in a virtual world, so there's a relative discrepancy taking place there that just breeds more inequality, it breeds more social unrest and things of that nature.
But then on a political front, it's easy to say, “Well, we've got to solve this problem.”
And the socialists will look at it and go, “Okay, well, who's got money?” Again, it's not about expanding the pie, It's about saying “Here's the pie, how do we divide it? Oh, those guys have got lots.
We don't. We can fix that.” It's like you've got kids and you're chopping up a cheesecake, it's pretty fucking simple, it's like, “How many are they?”
And it doesn't matter if Joey over there mowed the lawn, and Susie didn't. It's like, everyone gets us the same sort of piece.
Chris: So there's the geopolitical side of things, and then, of course, there's the domestic side and they all need to be considered.
While that's taking place, of course, you have things like MMT coming down the pike, which is just monetizing the data issuance that's going to be inflationary.
So you'd say, “Well,” maybe you want to own real estate in that sort of environment, but the serviceability of it is also going to become a problem so a lot of these things need to be considered.
And that's why I try and look at the globe and say, “On a big trend basis, what are those major trends? Is it a sort of socialism? Is it Marxism? Is it some sort of authoritarian?”
Who's doing what, and what are the major trends and keep a really beady eye.
I was saying this to a mate yesterday:
“When the chips are down, that's when you find out who your friends are.”
Right. “George, I need your help, my business is fucked,” or whatever. “
Do you help me? Do I help you?” and in those environments is when you start seeing what society is going to do, or what a person's going to do.
But in this instance, what society is going to do. And so, I'm watching super close because we're in this crisis, which is an economic crisis.
It's impacting citizens around the world and it's the first time I can think of, where this has been a global type of thing.
There's always been some problem going on in some particular country, and I've always looked at it like fish in an aquarium and you go, “Okay, well, what are they doing, and why they're doing it?
And how's that likely to play out?”
Listening To Social Trends
Chris: In this instance, it's happening everywhere. So we actually have this unique ability to look at very much the same problem being layered on countries, and see who does what, and how.
That's largely social trends, it's what the populace want, it's what they expect and again that comes back to my views on what I'm seeing largely in the East, for example, where to a large extent, it's like sorted out.
It sucks, but there's not a belief by the citizenry that the government will solve their problem for them, and hence there's also not a belief from the government side of things, that they should solve the problem.
George Gammon: So longterm, that's where you want to allocate capital, I think that's the takeaway here. Number one, you're very bullish on oil. You're trying to get them on your watch list, so to speak.
So if I'm an investor, number one, what would you suggest? How are you playing oil, let's start there, and number two, when we talk about a watch list for other countries, what countries do you have your eye on? And then if you don't like real estate, or maybe you do like real estate in those countries, if I'm an investor, how do I play that?
Because even if I own equities, you could say almost the same thing or your own bonds, or if you're a foreigner, they can just pull the trigger no matter what you own.
I guess they could do that domestically as well, but how are you reconciling that with your other view?
What You Should Do As An Investor
Chris: The first thing is to realize that we don't know and never to be dogmatic around a view, be flexible, and continuously watch what's going on. In that respect, I’m concentrated but diversified.
So we're fairly concentrated towards a stagflationary environment, and the various asset classes that would benefit in that. Energy falls into that, oil falls into that. I do think oil's got a longer timeframe.
In other words, I don't think oil is going to turn around tomorrow, but I don't care, I'm looking out for the longer time horizon.
You know, trying to figure out what's going to happen in the next few weeks or months, I think, is a fool's errand. Or maybe there are people who can do it, and good luck to them, I'm more interested in preserving my capital and making sure that I get those major trends right.
Because you don't have to do a whole lot more. If you think about tobacco, if you had bought tobacco in the 90s when they all figured out that it causes cancer, you didn't have to do anything.
You literally just bought those things, compounded the dividends, and it was the best sector to own, bar none, It beat tech, it beat everything.
Tobacco. Dirty, stinky, disgusting tobacco. Now, that's a big trend. So I'm more concentrated on that.
George Gammon: How are you playing oil?
You talk you're in it for the longterm, because you see this as a secular trend, so to speak, so my guess is you're not in futures, and you wouldn't suggest going into like the USO because of the contango.
You've got a negative role on that, so if anyone hasn't seen my video on why you should not buy the USO, or an oil ETF, the underlying asset isn't oil, but it's actually the futures market.
Check out my video on that. It has all to do with the forward curve, I believe they call it, being in contango. So what do you suggest?
Don’t Touch Futures!
Chris: ETFs are fine, some are fine, but they're all made different and you pointed that out so everyone should go and check that out.
But essentially, any ETF where it is tracking a futures contract, you're going to get roll decay, over time, it's a disaster, even if you get the trend right.
They're literally designed to decay over time. If you've got a leveraged ETF, that is tracking futures contracts, if you've got time, which pretty much everyone has, you could literally just short that thing forever.
And you will, over time, make money. Yes, you're going to have spikes, and you might get margin calls and you get wiped out.
But over time, it's like a guaranteed fricking money maker.
The point is we don't touch futures. I don't like the leverage and I don't want to have margin calls. I wouldn't touch any ETFs that are tracking futures contracts.
But in the energy space, there are some big, big companies like Royal Dutch is one now, Royal Dutch Shell. It's a well-run company, it's not going away and over time, I'm comfortable owning something like that.
George Gammon: What would your opinion be on people that say , “Oh yeah, Chris,” but they just cut their dividend and they haven't done that for 50 years.
Doesn't that scare you?
Chris: Yeah, we knew they were going to cut the dividend, you could see it coming. And so the market already started, look at the share price, you saw that bloody pricing it in.
That was kind of an obvious thing. The question really is this, “In 10 years’ time, are we still going to be using oil?” If the answer to that is, “Yes, undoubtedly.”
Or at least, “Probably,” then you say, “Well, who's going to be on the other side? Who's going to be alive in that timeframe? And how do we get there?”
And so you look at the guys that are going to survive, realizing that they're going to have extraordinary market share because everyone is getting killed right now.
Energy is this absolute necessity for civilization. So I don't think people have to get too fancy about it, George. You can garden by large-caps as if they're trending like small caps at the moment.
The Geopolitical Narrative Of Energy
Chris: If you want to get spicy, you could look at offshore. Offshore is getting absolutely hammered, slaughtered.
Yet, we still globally get about 30% of our supply from offshore, and it's being treated like the red-headed stepchild because Greta told us that we don't need it anymore.
And then all the virtue-signaling CEOs followed step, as did the sovereign wealth funds, and that's just one of the most unique setups I've seen in all of my career. This extraordinary shift in narrative.
Now, if you go through a period of time where we have this big increasing antagonism geopolitically, and you're a political leader and you don't have energy security, what are you going to do?
Are you really going to be worried about Greta, or some virtue signaling CEO, about climate change, or any of this?
I doubt it. I think that change is coming, and it's going to surprise the hell out of people.
In all investing is just a matter of probability.
I'm not saying going back up the track on it, you take a few percent of your portfolio and put it into something like that.
It makes a lot of sense to me. On the energy side of things, and there are many things in the energy complex. Uranium is one of them that we're on, Coal, which we've spoken about before.
What You Should Know If You’re Purchasing Financial Research
George Gammon: By the way, after our conversation and reading a lot of your research on it, I want to be clear, for anyone who's considering purchasing research, whether it's Chris or anyone else, I would not suggest doing it just to get stock picks.
If you're doing it just to get stock picks, I think you're not doing it for the right reasons. You do it to educate yourself, and then come to your own conclusions on what's best for you for your portfolio.
But I went through that process, and I came to the conclusion back in March, after our conversation, that I was going to buy a few things.
Number one was the shippers, uranium, and coal. I bought, actually shale as well.
Uranium has just massively gone up. If people haven't followed that, it's up tremendously since I bought it after our conversation.
So is coal and the shippers are down a little bit. So maybe you want to talk about those three things really quick.
About Coal and Uranium
Chris: Look, we talk about this in the publications we put out, you would have seen them.
Most of these things haven't moved at all. If you look at a short term chart on them, yeah, fine. Uranium is up.
George Gammon: Yeah. That's what I'm talking about, Uranium is up huge.
Chris: It's not! Pull it out. Pull it out over a 10, 20, 30-year timeframe, and actually take a look, and you'll see that you can't even see the move on the chart.
You cannot see it, It's not there, It's just disappeared. Right? So, that context is everything.
And the thing that we focus very heavily on is getting these big trends, and you sit on them for years.
It's not about trying to make money in the next six months. Look, a blind monkey can pick a stock that's going to go up to 300% at some point in time.
So, I'd be very cautious of just looking at you know, “are the stocks going to rocket for whatever reason?”
And look, there are some fantastic stock pickers out there, but for the most part, that's not what we do, we look at these major trends, you get behind pages.
Look, tobacco, we've talked about. So tobacco, if you bought it at the lows, you had to wait three years, it literally bumped and grinded along depending on where you bought, you could have been anywhere from up like 100%, to down 70%. Right?
But buying at those lows, and you waited for three years before it really started climbing, and for the next 20 years, you just made money.
And then the dividends were huge, you compounded the dividends and, you literally would have beaten Buffett, by sitting there and just buying tobacco stocks. Nothing else. Just buy them, sit on the beach and just have a good time.
Why Energy Stock Prices Shouldn’t Worry You
Chris: So, when you think about energy stocks, or think about any of these things, they're very cyclical.
I just ran a webinar yesterday which went on for like three hours because we had so many questions from subscribers.
It's easy to get worried like, “Oh, the price of this thing has gone up by like 30%, 40%. Do I take profits?” And I'm like, “What's changed?” The price changed, nothing else has changed.
Chill, Calm down, and then you could have the same question, “Oh, price of this thing has gone down 30%. Did you get it wrong?”
So, What's that saying? Measure twice, cut once.
Do all your work, make sure you know what you're buying, why you're buying it, and in the noise, and we're in the most noisy, chaotic environment I've ever been in, people don't know what to do.
So they're jumping this way, and they're jumping that way.
And the most dangerous thing you can do is leave price determine your actions. If you know what you bought, and why you bought it, then you're fine.
You can keep reassessing that because you will get some shit wrong. But you keep reassessing it, and you go, “Okay, is my thesis flawed? Is this something that's changed?” Maybe a government's coming with some regulation that just destroys this.
There are things that can happen, you've got to be open to them. Again, you can't be myopic and just be like, “It's only this, and I'm right.”Then you're going to get stuck.
So I think it’s a smart way to do it. But you asked the question about countries that I'm interested in.
Profitable Countries To Keep An Eye On
Chris: Basically, I've looked at the balance of payments across countries, because your balance of payments gives you an indication well, it's kind of like the balance sheet, or it's more the income statement of the country.
And then looking at those countries and saying, “What's the social construct look like? What are the governments doing? What are the people doing?
Are people clamoring for Marxism as they are in the west?” Because if they are, shit, we're in for trouble. What is taking place? So, there are a few highlights there.
I quite like Thailand, even though it's a military dictatorship that pretends they're not.
So there's a lot of political instability down there, and that's something to be careful of.
Vietnam is interesting as well, Taiwan's a good one, but it has got a problem with China. I don't know if you saw the news just recently of what's going on with Hong Kong and China.
The Chinese are very much putting pressure on there, and stepping in, and I don't see any Western democratic country going in and stopping them at this point in time.
Chris: In the chaos of anything, like when you had a hurricane, Katrina. Was it Katrina?
You had people looting and rioting, taking advantage of a situation, we're kind of in that world, geopolitically, today.
We're seeing countries taking advantage of various shapes or forms. So I think personally for me, it's come at a time to be liquid, in so far as owning things that I can buy and sell on an exchange, with fairly ease and ability, being diversified.
And trying to figure out where and how the dust settles, because I think there's going to be some significant bargains there.
So if we get the dollar rally then I'm anticipating, then a lot of these emerging market countries, which if they don't go down and increased debt, pay for all sorts of social programs and so on and so forth, in other words.
If they basically let the chips fall, take the pain, then I think there's going to be some fantastic opportunities there. Really fantastic ones. And so I'm keeping my eye on that.
George Gammon: In stocks?
Chris: In stocks and in real estate as well. One of the things for me also is physical, I've lived in seven different countries, I've traveled a lot and you want to be somewhere that's relatively safe.
And that's a concern to me, kids, the world that they're going to enter is very important for me.
I want to make sure that we're in the right spot and have options. You go back to the beginning of the century, anyone should have just moved to America, that was the move, that's what you needed to do.
Your options and your kid's options and your grandkids' options were going to be so much better than pretty much anyone else on the planet just by doing that one thing.
And I feel like we're moving into a similar stage in history.
So I want to try and make those as best as I can, make adequate decisions. But that's a longer-term view, and it's not even so much about just trying to make money in the short term. It's more important stuff.
Do you suddenly land up living in some Marxist hellhole? It can happen. It can happen.
George Gammon: So when you're talking about real estate, you're talking about not only maybe investing in real estate or rental properties.
If they're a writ or something, but you're also talking about figuring out where you want to physically be with your family.
Chris: Yeah. The same. And ultimately, if you get that right, it's probably a similar trend.
Look, if you would physically be someplace that's good for you, good for your capital, safe, economically strong, that's a perfect environment to invest in real estate anyway.
George Gammon: Right.
So, are you looking at those same countries for the real estate and the personal component of it when you're talking about Thailand, Vietnam, Taiwan?
Chris: Yeah. There's the physical side of things. I've lived in Thailand before. Right now is not the time, right now is definitely not the time.
The real estate market, if we just took Thailand, is oversupplied, Vietnam is still expensive. But the underlying social construct of those countries is more favorable to me than many other countries around the world.
That's what I'm saying, so I'm going to sit and watch them. There are other places that I'm looking at, purely from an investment perspective, that are very interesting to me.
Dubai is one. I've been looking at potentially setting up a fund that was just going to be myself in some mates, and then I opened the question to subscribers to saying, “Hey, this is what I'm thinking, and let me know.
And if there's enough interest then, we just put a vehicle together to go and do it.
Dubai, An Investment Opportunity
Chris: Basically the thesis is this, Dubai is the money center for the Middle East.
It's the playground of the Middle East. It's got relative rule of law, It has a favorable tax structure, and it has freehold real estate that anybody can buy. Very, very unique.
Actually, anywhere in the world, quite frankly. And it is extremely tied to oil. Right now, it's absolutely being just decimated.
George Gammon:
Markets specifically there?
Chris: Yeah. Well, they have a massive oversupply.
They had something called Expo 2020, where they basically built a shit ton of apartments and everything else, expecting a massive influx, and it didn't happen. That's not going to happen.
George Gammon:
Is their currency pegged to the dollar?
Chris: Yep. Pegged to the dollar. Yeah. AED is pegged to the dollar and the other thing is that the country's mostly ex-pats.
There are only about 40,000 or 50,000 actual citizens, and there's been millions of apartments and buildings and everything else and It's all ex-pats and all the ex-pats are leaving, or have left.
So it's a real destruction.
George Gammon:
So why have they left? Because of the virus?
Chris: No. Because it's the oil industry.
Everything is synthetically off the back of the oil industry, kind of, really, and that's just being slaughtered.
You can get prime real estate, like the Burj Khalifa, which everyone knows, if you basically look at any postcards in Dubai. It's this building.
George Gammon: Or Mission Impossible or… I'm sorry, not Mission Impossible.
No, I'm thinking about the tallest building there. You're about the hotel that's shaped like a sail, right?
Chris: No, no, no. That's the Burj Dubai. The Burj Khalifa is that tall one.
George Gammon: Okay. Got it. Got it.
Chris: Which is actually apartments. So you can buy that.
Well, I don't think you can buy into the hotel, It's just a hotel. That's the sail one. And that thing's considered to be like a seven-star service for the apartments.
George Gammon: It's staggering.
Chris: It's ridiculous. Which also means that the service costs on these things are fairly high. But the point is, like in a boom, that's where people will wait.
It was like, “Oh, you have an apartment in the Khalifa? Oh, wow.”
I still remember a conversation back in the previous boom, I was listening to at the airport and these two Arabs basically just grandstanding, and one was like, “Oh, I have an apartment, and it cost me like $100,000 a year in service costs,” or something.
And the other guy was like, “Mine cost me $120,000,” sort of thing. It was like this, “Mine's more.”
It was like, if you had spent more, then you were a bigger dick. That's just what happens in this boom.
The more you could spend, the more ostentatious you could be, the more you had status. Right? We humans are a bunch of morons. But anyway…
The Dollar Peg And Artificial Currency
George Gammon:
Are you worried about the peg? Because I'm assuming they're keeping that peg.
Chris: Well, that's what I'm watching very closely, all these dollar pegs. If we get the dollar pegs breaking, that's going to be wonderful.
George Gammon:
Will it take real estate down even further? I'd need to think that through. How would that work?
Chris: Yeah. Because it's going to revalue to a lower level. It'd be priced in dirham, presumably.
George Gammon: So their currency is artificially high right now.
Chris: Yeah. Because look, all the revenues are in oil really. And oil is not doing so well, so you can actually sit and look at all the FX reserves and there's like Oman, Qatar, all those countries.
Some are a little bit worse than others. Oman is in a pretty shitty shaky space, trying to trade those currencies is really difficult because there's no real market.
In order to get a market made, you have to go to a large bank and get a market made to structure a product to short the short a lot of those pegs.
George Gammon: So, you're thinking that potentially, they've got an artificially high currency because of the peg. The peg breaks because they don't have the FX reserves.
If it breaks, then their currency goes down relative to the dollar, which would push real estate prices up, denominated in their currency. Is that how you're seeing?
Chris: Yeah. But they'll come down, on a nominal basis. None of this stuff is priced in dirham anyway, It's all priced in dollars.
George Gammon: In dollar terms, it goes down, dirham terms it goes up.
Chris: Yeah. But the dirham would be collapsing more than that. So let's say the dirham collapsed by, just say for shits and giggles, 80%, then the price might go up by 40% in dirham.
George Gammon: The dollar is still losing.
So are you trying to wait for the opportunity for that to happen and then go in and buy real estate with dollars, to get that 40% break on what's already super cheap because of the decimation of the oil industry? Or what's your angle?
Chris: Pretty much.
Look, the best situation you can be in as an investor, is one where you don't have to do anything. And if it doesn't happen, it doesn't happen.
But if you get us set up where it's kind of a no-brainer, then you act on it. So again, you don't want to be in this sort of position where you go, “Oh yeah, this is a great idea. I'm just going to go and do it.”
And then you start talking yourself into why it's such a wonderful idea.
Just wait. Just be patient. Let the market tell you what you got to do. It's already a blood in the streets scenario. It is really, really hurting.
George Gammon:
How much of the real estate prices come down there, in price per square meter?
Chris: I wrote a whole article about this, before the coronavirus.
So, the Khalifa, which is the most expensive I could find, real state, was cheaper than apartments in Ho Chi Minh City and in Ho Chi Minh City, you still walk out the door, and there's still sewage on the fucking footpath.
Dubai’s Real Estate Pricing
George Gammon: Are you saying there's no sewage on the footpath in Dubai? That is for sure.
Chris: Yeah. Well, it's cheaper than Sidney, which is easy. Cheaper than Cape Town, cheaper than Nigeria.
George Gammon: So in dollars…
I'm guessing if that's the case, in dollars, was it around I'd say what? $1,500, $2,000 a square meter?
Chris: Hang on a second. Because I had it priced in square feet.
George Gammon: Okay. So that would be around, call it $150 to $200 a square foot, just to make it easy.
Chris: I'll have to get it back to you on the exact numbers, George. I don't want to give the wrong numbers. So that was last year I was looking at it.
I've been trying to get numbers from agents, and I've got some friends over there that are trying to give me adequate numbers and it's really chaotic, and no one really wants to give you proper numbers.
There is a database you can pay, and tap in, and find where the transactions are actually taking place. But, at this point, everyone's hanging on.
Those people who can, are hanging on because on paper, they've lost so much. So I'm waiting for that final capitulation, where they're just like, “Ah, this is just not coming back. This is not happening.”
I'm seeing for example, with a lot of apartments that were built for this Expo 2020, where now they're like offering free leases for five years, and all sorts of just nonsense.
Because the thing is, if you've got no one in them, you don't walk into a place that's just a guy's town and, “Yeah, I'll buy that.”
You've got no neighbors, and you've got no ambiance. You've got nothing. You're like, “What the hell?”
So they're trying to just fill them with people, which might get some interest. But it's not working, because the underlying economy is under such severe pressure.
Dubai’s Debtors Jail
Chris: The other component behind it is that in the UAE, if you have debt and you don't pay it back, there are debtors' jails. There's not a bankruptcy process there.
So, if you were some ex-pat and you brought a bunch of money, and bought a nice apartment, and in the oil turned to shit, what do you do? You get out?
George Gammon: You leave the country.
I know they don't have interest, but I didn't realize they had like debtors' prison.
Chris: Yeah, you literally leave the keys in the letterbox, and you get the hell out. Like we were talking before, about places you want to live in, I don't want to live there.
They've locked the place down. Right? And I think a big portion of it is they don't want people leaving their own money because it just exacerbates the problem.
But at the same time, if you've got no cash flows, you've got no cash flows. What are you going to do? So it's just a really bad situation for anyone stuck there who doesn't have cash flow and can't pay for their debts.
I don't know how it's going to be resolved.
Investing In Foreign Countries And Having Other Currency Denominated Assets
George Gammon: Sounds like a fantastic opportunity for investors though. That was one thing I wanted to discuss with you, just on a personal level, more of a selfish question.
Because I'm in Colombia in Medellin, as you know. I've invested heavily in real estate here, and done well since 2015.
And now I'm starting to see a lot of supply come onto the market that wasn't there before. So I'm like, “Maybe I can get some good deals here.”
But then I'm asking myself, “Boy, do I really want more of my portfolio denominated in pesos?”
I've got a good mix right now between different currencies. So I'm not overweight dollars, or overweight pesos, but if I bring another, call it 500 grand US down here, now I've got quite a bit of peso-denominated assets.
Do I really want to do that?
But now that you talk about Dubai, I'm like, “Wait a minute. That would be good.” Because you've got something that could have a dollar peg.
Maybe not now, maybe it breaks. But it's just, put that on the radar. Very interesting.
Chris: Well, think about it like this, if you get your top-tier assets, there's still going to be occupancy. It's just going to be cheap, right?
Like a lot of the city stuff that has been built out, it's going to be empty for some time. Maybe they even bulldoze it, maybe the government comes in with an idea to bulldoze it.
Who knows? But your top-tier stuff, there's always going to be demand there.
George Gammon: Yeah. They're not going to bulldoze the Khalifa, that's for sure.
Chris: No. Exactly, so, stuff like that, you can buy it on a positive carry. It's probably the most well-known building in the world right?
Benefits For The Rich On Dubai’s Tax Policy
George Gammon: What are the property taxes like there, Chris?
Chris: There's no taxes.
There's a transaction tax, no taxes. So there's a transaction tax of 4%, buying and selling.
They tax goods. So like you go there and you buy a beer and it's 20 bucks. That's their tax.
But it's been set up like a tax haven, right? So, you don't pay your tax. It's good for rich people, where you'll go and you'll spend maybe $500 on dinner, or whatever.
You don't care about that because you're saving millions in terms of your whole tax structure, right?
But anyway, from the property side of things, it's very favorable and again, it's freehold real estate, so you can own it outright. You've got this positive carry, and synthetically, you're basically along the energy markets. It's the financial hub of the Middle East. When anything gets done, that's where it gets done.
Then when times are good, that's the playground, It's the weirdest place, like you wander down the street, and there's a girl in a full burka, and then there's a girl in a bikini.
George Gammon: Yeah. Right. Like the beach.
Chris: The Arabs love it because it's this big and It's like you can be free, and you can do what you want to do.
George Gammon: Yeah. You can get a beer or whatever. You can get alcohol in the hotels, and stuff.
Chris: Yeah. Again, it's not a place that I want to live in or anything, but from an investment speculative sort of positioning, I looked at that and I'm like, “That's really quite unique.”
There's a buddy of mine who actually brought it to my attention some time back, and we started looking at it, and then we're like, “Oh yeah, we'll go and probably…”
Maybe we'll just look at going in halves and buying an apartment and do that.
Long story short, eventually I said, “Okay, well maybe to do at a bit of scale, let's put together a corporate entity.
And then instead of me just buying one apartment with my buddy, we could buy a whole floor.” I started talking to agents. You buy a floor, and you get way better pricing than if you bought one, and I put an analyst of mine onto it.
Anyway, we've been watching it, we were just investigating and watching, and then this thing came along. The virus, together with the oil wars has just been Merry Christmas on it.
Because I knew the supply side, so I was waiting and being patient, because the whole supply of properties that were built for Expo 2020 were coming on.
And I wanted that to really hit that market to really just swamp the fuck out of it. And that's been happening.
But we've had all of this other stuff, and so a part of me just sits here and it goes, “Okay, what else could you throw at these guys?”
The only thing I can think of is a war with Iran, that would be worse. But, barring that, I can't really think of anything worse to throw at them.
I don't think it's anything you've got to jump into right now. I'm not. But probably in the next six months, 12 months maybe, somewhere there, I'm going to start looking into the idea.
George Gammon: As soon as we put this virus in the rearview mirror, I'm definitely going to go out there. I've been to Dubai before, I absolutely love it.
I'm looking to put more money to work in real estate and want some diversity. I cannot wait to get out there and check it out.
Chris: George, I could get three and a half cap on Khalifa.
George Gammon:
Just using no leverage?
Chris: Yeah.
George Gammon: Okay. Just a straight three and a half cap? Yeah. So that's not great.
Chris: It's the Khalifa though. So, if you went down the Marina and you went elsewhere, like Europe, 10, 12, 15. That was then.
George Gammon: That was a year ago.
Chris: Yeah. Well, under a year ago, probably like October.
George Gammon: Yeah. Okay. I can't wait to check on that. That's what I'll do tonight.
For those of my viewers who want to find out more, first and foremost, if you're interested in Chris's research, we're an affiliate.
I'm very proud to be an affiliate for Chris. You can go to GeorgeGammon.com, go to the recommended resources, click on the capitalist exploits Insider, and check out all the info.
If it's right for you, it's a fantastic product. But for people who want to find out more, Chris, where do they go? I know you're really active on Twitter.
Chris: Yeah. I am, sometimes, and then I'm not, sometimes. Depends.
Twitter is @capitalistexp, which is the Twitter handle. Otherwise, it's just CapitalistExploits.com, or .at. You guys take it in. That's it.
George Gammon: All right, Chris. I appreciate your time. I cannot wait to do it again.
Chris: Always fun. Thanks for sharing.
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