What’s In Store for 2024? Bitcoin, Home Buying, and Kiyosaki’s $1.2 billion in debt

0:00What's in store for the world of money in 2024? for prediction is a dangerous word in the world of finance, but we're going to take a look at what major trends, big picture, 30 ,000 foot view we anticipate in the year ahead. Welcome to the Afford Anything podcast, the show that understands you can afford anything but not everything. Every choice that you make carries a trade-off. And that doesn't just apply to your money. That applies to your time, your focus, your energy, your attention. It applies to any limited resource that you need to manage. So what matters most and how do you live accordingly?

0:35That is what this podcast is here to explore. My name is Paula Pant. I'm the host of the show. Normally, we're a weekly podcast. We come out every Wednesday-ish, but once a month, on the first Friday of the month, we air a First Friday bonus episode. So welcome to the January 2024 First Friday bonus episode. So what's in store for 2024? Well, to kick off, here's a word you haven't heard in a while, Bitcoin. Bitcoin peaked in November of 2021 at$69 ,000, but then plummeted 75 % in the following months. And it's now at a 21-month peak over$45 ,000. So why? Why is it that Bitcoin has had a bit of a revival?

1:22Well, there are two reasons, and both of those reasons are set to, in the short term, intensify. Reason number one, the SEC, the Securities and Exchange Commission, which regulates the financial markets, is widely expected to approve a spot Bitcoin ETF. This comes after 10 years of failed applications and 15 years after the very first block, the Genesis block, was mined on the Bitcoin blockchain, meaning 15 years after essentially Bitcoin was first mined. Now, as of the time that I'm recording this, the SEC has not yet approved this spot Bitcoin ETF, but it's expected to happen at any point. It could literally happen within a few hours of when I'm recording this.

2:14If not within a few hours, it could happen within a few days. Many analysts are attributing Bitcoin's recent rally. So it's rallied 61 % since October. Many people are attributing that rally to expectations that the SEC will finally approve this ETF application. There are already Bitcoin ETFs in Canada and in Germany, but the US has not had one and likely will have one any minute now. Why does everyone care so much? Why is Bitcoin rallying so much in anticipation of this? Well, when we think of risk associated with an investment, there are a few different types of risks that we need to weigh. One is speculative risk that relates to the value of a given asset.

3:01Bitcoin is worth whatever people are willing to pay for it. It doesn't inherently produce any income, unlike let's say a company, a company inherently produces income or a rental property inherently produces income. And therefore with a company or with a rental property, the value of that company or the value of that property is some multiple of the amount of income that it produces. Now the markets differ on what that multiple will be, right? That multiple itself is in flux, but there is value to that asset that is tied to its income stream. With something like Bitcoin, the value of Bitcoin is purely what other people are willing to pay for it.

3:47In that regard, it's similar to other speculative investments like, let's say, art, right? The value of a painting is what people are willing to pay for it. The painting itself doesn't inherently produce an income stream. So that speculative risk, that is not going to change regardless of whether you're buying Bitcoin directly or whether you're buying Bitcoin on the markets. And for that reason, a lot of people say, regardless of whether it's an ETF or not, you still face a very high degree of speculative risk. That is absolutely true. However, that risk is not the only risk that you face when you buy Bitcoin.

4:22The other risk you face is the risk of loss that is the result of either theft or of institutional collapse. Right now, if you hold Bitcoin or if you hold other cryptocurrencies, it is your responsibility to store those coins in some type of a digital wallet that is offline. If, heaven forbid, you lose this, you lose this little piece of hardware, or if you lose your passwords, which are known as private keys, if you lose your ability to get into the wallet, you're effed. And you hear these horror stories of people who accidentally threw their wallet into a trash can and it had$24 million worth of Bitcoin on it.

5:10You hear these horror stories of people who have accidentally lost massive amounts of money because that money is stored on a tiny little piece of hardware. and separately their private keys, their passwords are stored elsewhere. And it's unfortunately too easy to lose one or both of those. Now, the alternative would be to store it with a crypto brokerage company in the same way that, you know, if you've got index funds, your index funds are stored at Vanguard or Schwab or Fidelity. Likewise, you could store your crypto with a crypto brokerage company. But if that company collapses, if they shut down, then you're also effed.

5:55And that happened to multiple crypto brokerage companies in 2022. There is no equivalent of FDIC insurance or SIPC insurance for crypto brokerage accounts. And we haven't even touched on the biggest, most headline grabbing collapse of them all, which was the collapse of FTX. the cryptocurrency exchange, whose founder, Sam Bankman-Fried, went to prison for fraud. So the risk in the world of crypto investing is not just the risk of volatile valuation, which is the same type of risk that you find in any speculative asset. It's also the risk that the underlying institution might collapse. And if that happens, your money disappears with it.

6:46or if you decide not to use an underlying institution, it's on you to maintain a tiny little piece of hardware that has a bunch of your money stored on it. And that's also risky, especially if you move. I mean, it's easy for things to get lost in a move, right? So that is part of the reason why people are so excited about the emergence of a Bitcoin ETF, because then you can go to Fidelity or you can go to BlackRock and you can buy Bitcoin as an ETF in the same way that you would invest in any other ETF and you would have those same institutional protections. So that expectation of a Bitcoin ETF is one of two reasons why we're seeing a rally right now.

7:31The other reason is because the next Bitcoin halving event is supposed to happen this spring. It's supposed to happen within a few months. Now, what is Bitcoin halving? Well, there's a fixed amount of Bitcoin that can ever be brought into existence. And the way that people can obtain Bitcoin, one way that people can obtain Bitcoin is that people can get a reward for mining Bitcoin. Bitcoin halving takes place when the mining reward gets cut in half in order to reduce the supply of new coins that are entering the network. And what we know historically is that every time there is a Bitcoin halving event, there's a huge spike in price.

8:17In 2011, the reward was set at 50 Bitcoin. But two years later in 2013, the first halving event took place, at which point the reward dropped to 25 Bitcoin. And at that point, there was a huge surge in the price of Bitcoin after that halving event took place. And it's basic supply, right? When the supply drops by half, the price of what exists typically tends to go up. So we saw that in 2013 when it dropped from 50 to 25. We saw that again in 2016 at the next halving event when it dropped from 25 down to 12.5. And then we saw that in a big, big way in early 2020 when the reward dropped from 12.5 to 6.25.

9:04Now, the next halving event is supposed to happen, widely expected to happen, this spring. And if history is any indicator, when halving events take place, typically, historically, the price of Bitcoin jumps. And so those two factors working in tandem, the expected approval of an ETF plus the expected having, which should be happening in a few months, both of those together explain some of the recent, the huge recent price run-up that we've seen. While it's dangerous to make any predictions about the future, it seems as though the conditions are in place based on historic trends, assuming that the historic pattern continues to play out in the way that it has in the past.

9:53There is evidence to support the idea that the price of Bitcoin will rise after the next halving event, which is supposed to take place within the next few months. Now, that's short term. What that means in terms of where Bitcoin will end up by the end of 2024, that's anybody's guess, right? So in the short term, based on historic patterns, many investors are anticipating a rise. But in the long term, and I'm defining long term just as by the end of this calendar year, you know, one year rather than a few months. In the long term, it's still really anybody's guess where things are going to go.

10:33But one thing is for sure, you're going to be hearing a lot more about Bitcoin and cryptocurrencies generally in 2024. after a couple of years of not hearing about it other than in the context of Sam Bankman-Fried. So that's one major piece that's on the docket for 2024. Switching gears, the Fed is widely expected to cut interest rates in the first half of 2024. I mean, at this point, analysts are arguing about whether the rate cut is going to happen in Q1 or Q2. That's the debate. but nobody is arguing about whether or not it will happen. In fact, nobody's even making an argument for Q3 or Q4.

11:14The debate that's happening right now is, is it gonna be Q1, is it gonna be Q2? So the expectation that the Fed is going to start lowering interest rates has already been priced into the markets. Companies that are planning for what the future cost of capital is going to be are already baking in this anticipated interest rate reduction into their formulas. But what does that mean for you? Well, the average person, you and I, in the Afford Anything community, we feel the effect of interest rates most when it comes to mortgages and housing. And I say that specifically about the Afford Anything community.

11:52There are others who feel it in the interest rate that they pay on their credit cards or in auto loans. And perhaps you feel it in auto loans too, but at the end of the day, your auto loan is a relatively much tinier number than your home loan. What we know is the following. If interest rates decline, which likely they will, and soon, there is a reasonable likelihood that more buyers are going to enter the market. In late 2023, we saw home buying drop to its lowest level since 1996, which meant that it was a fantastic time to buy because home buyers faced such little competition. You remember back in 2020 during the pandemic, when you tried to buy a home, every home that was listed on the market was getting multiple offers.

12:42I shouldn't say every, but many homes that were being listed got multiple offers on the day of listing. It was a highly, highly competitive market. The average days on market during that era was incredibly tiny across most major metro areas. Contrast that to the home buying experience in 2023 when oftentimes home buyers would find that they rendered the only offer. So home buyers were in an incredible position to negotiate. If interest rates decline, when interest rates decline, there is a reasonable likelihood that pent-up demand will start flowing into the marketplace, meaning more people are going to buy.

13:25There will be increased competition from other home buyers, which likely will put some upward pressure on home prices, particularly given that we still have a massive housing supply shortage. So for those of you who are thinking about buying, if your budget allows you to do so, obviously never do something that you can't afford to do. Never stretch yourself and become house poor. But if your budget allows you to do so, don't hesitate to buy. Don't delay the purchase because it's likely that prices in the future are going to be higher than they are today. Now that's nationwide. Obviously, every local market is unique.

14:08right? What plays out in Youngstown, Ohio is not going to be the same as what plays out in Dallas, Texas. So please contextualize what I'm saying with the boots on the ground reality of your specific local market, because ultimately all real estate is local. But speaking purely in terms of nationwide trends, broadly, I think you can reasonably expect that as interest rates decrease, demand from buyers increases. And given the supply constraints, as well as given the long lead time required to create new supply, that increased demand is likely to lead to higher home prices. By the way, we've talked about what to do if you're on the buy side.

14:54If you're on the sell side, if you're thinking about selling your home, again, assuming that your budget can withstand And holding onto that home for a little bit longer, perhaps by virtue of becoming a quote-unquote accidental landlord, assuming that your budget can handle that and that you wouldn't be stretching yourself, there is an argument to be made for selling later. Now, the question really becomes when. When will we see a significant enough tick in home buying activity that it pushes prices up noticeably? And I don't believe that there is any good way to answer that when, because we don't know, number one, we don't know when the Fed will start to lower interest rates, but likely it's going to be in the first Q1 or Q2 of this year.

15:44Number two, we don't know how many interest rate reductions we are going to see over the span of the year. And number three, we don't know what the sum total of those interest rate reductions will be by the end of the year. And it isn't just that we don't know that. The Fed itself does not know that. The Board of Governors of the Fed, they don't have a grand plan. They're watching the economic data and making decisions in real time. So nobody, not even the Fed itself, knows the answers to those questions. And it's only as monthly data comes out that the Fed will analyze and respond accordingly and we will essentially take it a month at a time.

16:26What we do know is that 91.8 % of mortgaged homeowners have an interest rate that's below 6%. And of those, 82.4 % of homeowners have an interest rate that's below 5%. In other words, nearly everyone who has a mortgage has an interest rate that's below 6%. And four out of five people who have mortgages have an interest rate that's below 5%. And what that means is that many existing homeowners, mortgaged homeowners, are going to remain locked into their current mortgages, meaning they're not going to want to trade out of their current mortgages until interest rates drop down to something that at least approximates close to where they are.

17:12And given that 82 % have a mortgage interest rate that's below 5%, we're going to have to see rates come down pretty substantially before we can get back to those levels, before enough mortgaged homeowners unlock. Now, that being said, the wild card in all of this is that 42 % of all owner-occupied homes in the U.S. are owned free and clear. Now, that's data as of 2021. So that 42 % of homeowners, which are largely baby boomers, those are people who are not subject to the lock-in effect. They aren't disincentivized from selling their homes due to the delta in interest rates. So that, when it comes to housing supply, is going to be a bit of a wild card.

17:56What will predominantly baby boomers who own their homes free and clear, what will they choose to do? Will they choose to downsize? Will they choose to hold on to the homes? that point is going to be very interesting to watch, particularly as home prices climb and those free and clear homeowners are able to fetch more and more for their properties. Now, we also know that residential new construction starts are increasing. Data from the St. Louis Fed shows over the past year a steep uptick in starts for new privately owned housing units. So my expectation for 2024 is that we will continue to see that trend line increasing.

18:39We're going to continue to see more residential new construction. That said, the gap between supply and demand is so severe that it would take many years before that supply and demand imbalance could even begin to level out. We are several million housing units short of what we need, which is why, by the way, for those of you who are real estate investors, one of the most important things that you can do for society, which is also one of the most profitable things that you can do for yourself, is to increase housing density. So for example, if you buy a single family home and you retrofit the basement into a separate unit, in other words, you turn one unit into two units, well, that's more rental income, greater profitability for you, and it adds new supply of the market.

19:31Likewise, if you buy a single family home and you notice that the living room is way too big and by virtue of putting up a partition wall and building a closet, you can turn a two-bedroom home into a three-bedroom home for relatively little cost. Well, while you haven't added new units, you have increased the density within a given unit. And that increase in density also is important for society as well as more profitable for you. So one of the opportunities that you have as a real estate investor is to help solve the supply crisis by either increasing density within your unit or by increasing supply by virtue of increasing the number of units or both.

20:17And doing so is hugely beneficial for society and is more profitable to you. Massive win-win. So those are, when we think of, when I think of what's ahead for 2024, cryptocurrency and interest rate reductions and the corresponding effect on home prices. Those are the two big things that I see coming down the pipeline. Obviously, I will never predict what the stock market is going to do. I think it's folly to try to make any sort of predictions there. I will say that major geopolitical events could be the black swan variable in economic performance and in stock performance. At the international level, that is something that as investors we should all be watching closely.

21:01And then domestically, of course, this is an election year, which does pump a lot of money through the economy by virtue of ad spending. And I would not be surprised if this particular election year has heavier and more targeted ad spending than we had four years ago. Kevin Harlan here tonight. The NBA on Prime crew and I are back with another spectacular NBA doubleheader. The action starts with one of the best rivalries in sports. as Luka Doncic and the Los Angeles Lakers take on the Boston Celtics with Jalen Brown. Then Cooper Flagg and the Mavs take on SGA and the Oklahoma City Thunder. It all comes your way tonight on Prime.

21:49And if you're not a Prime member, that's not a problem. Sign up for a free 30-day trial to get started today. The Lakers and Celtics, the Mavs and Thunder. Coverage starts tonight at 6.30 p.m. Eastern, only on Prime. Restrictions apply. See amazon.com slash amazonprime for details. This year, give a gift that goes far beyond the moment, an Invest 529 account. Whether it's a child, grandchild, or someone just starting out, you're helping them safe for education that can open doors for a lifetime. Invest 529 is a tax-advantaged way to help save for college, trade school, or even apprenticeship programs.

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24:32Moving to the world of financial gossip, let's talk about Robert Kiyosaki. He is the author of the number one personal finance selling book in the world, Rich Dad, Poor Dad. He has three and a half million followers on Instagram. He has two and a half million followers on Twitter. and he has recently revealed that he is$1.2 billion in debt, billion with a B. Now, there's a lot to unpack here, but my first question is, is he even telling the truth? Robert Kiyosaki made this admission, this revelation, this claim on November 30th in a reel that he posted to his Instagram feed, which remember has 3.6 million followers.

25:15He revealed this on November 30th. For some reason, the news didn't pick up on this until yesterday, January 4th. If you run a search for news articles about Robert Kiyosaki, you'll see that every major news outlet, Fortune Magazine, Yahoo Finance, Market Watch, even the Hindustan Times, which is a major newspaper in India, every single one of them ran this story yesterday, January 4th, despite the fact that he admitted to having this debt back in November. So why was there a one month delay? I don't know. Typically, when something is revealed, it's either newsworthy or it isn't. If it's newsworthy, it gets picked up immediately.

25:56If it's not, it never gets picked up. It's incredibly rare for something to become made public, get ignored for over a month, and then suddenly hit every news outlet simultaneously. What was the trigger for that? Did he send out press releases after concluding that an Instagram reel wasn't enough? Maybe, I don't know. But there must have been some type of a trigger that led all of these news agencies to report it five weeks after it was first made public. And that makes me question its veracity. How can a person be$1.2 billion in debt? To be that deeply in debt, he would need a lender willing to lend him$1.2 billion, him or his companies.

26:46And that's precisely the point that Robert Kiyosaki himself makes. He says, hey, it's not a bad thing that he is that deeply in debt because, quote, if I go bust, the bank goes bust. And also, quote, not my problem. So his claim is that he used this debt to purchase assets. And therefore, he is arbitraging this debt. And because a billion dollars is so much money, his lender has a vested interest in his success. There's an adage, a popular cliche, that if you owe me$100, you're a jerk. But if you owe me$100 million, you're my best friend. And that's because when two entities, a lender and a borrower, have a huge amount of money that they're dealing with, it's in both of their mutual interests for one another to remain solvent.

27:43Did Kiyosaki find a lender that was willing to give him$1.2 billion? Or is he trying to make a point about leverage and arbitrage? You know, he stated in an interview on The Disruptors podcast, quote, I'm a billion dollars in debt because debt is money. And then he claimed that he is using this debt that he's borrowed to purchase precious metal commodities such as gold and silver, because his claim is that gold and silver will retain their value while the U.S. dollar fluctuates. He also went on to describe the U.S. dollar as, quote, toilet paper. And he likes to go around saying, quote, cash is trash.

28:29So Kiyosaki, of course, is welcome to hold whatever beliefs he has about fiat currency and whatever beliefs he has about commodities. Lots of people have differing opinions about that. Cool. I disagree personally, but no big deal. There are many intelligent, well-informed people who have a wide variety of thoughts about cash versus commodities. But lately, Kiyosaki has become more and more extreme. He continually issues warnings about an impending market collapse. He is constantly chicken littling, the sky is falling, about the stock market and warning of a market crisis, a market collapse. He's constantly beating those drums.

29:18He, as we covered, hates cash. And in addition to precious metals, he also advises his followers to invest in either Bitcoin or cattle. His company filed for bankruptcy in 2012, which I don't judge him for. A lot of entrepreneurs, particularly those who borrow, file for bankruptcy. That is part of risk-taking, particularly part of borrowing. If you borrow, you do run the risk of insolvency. That's not any type of a moral shortcoming. It's simply a consequence. So I don't judge him for the bankruptcy in 2012, but I do question how any lender would agree to loan him$1.2 billion given that he's recovering from bankruptcy.