Crisis Honeymoon Explained

This is the Momentum Podcast.

We're in a crisis honeymoon period. This is a period where the crisis that we're in has taken hold and is having a massive effect on the world. But most people don't recognize it because it isn't personally affecting them. Unfortunately, the logic of, "Because it hasn't happened to me it probably isn't real," is flawed. This crisis is real. The numbers are overwhelming. And in this episode of the Momentum Podcast, Alex is going to share where we are and what's coming next. I hope you enjoy.

I'm Alex Charfen and this is the Momentum Podcast made for empire builders, game changers, trailblazers, shot takers, record breakers, world makers, and creators of all kinds. Those among us who can't turn it off and don't know why anyone would want to. We challenge complacency, destroy apathy, and we are obsessed with creating momentum, so we can roll over bureaucracy and make our greatest contribution.

Sure, we pay attention to their rules, but only so that we can bend them, break them, then rewrite them around our own will. We don't accept our destiny, we define it. We don't understand defeat because you only lose if you stop and we don't know how. While the rest of the world strives for average and clings desperately to the status quo, we are the minority, the few who are willing to hallucinate, there could be a better future. And instead of just daydreaming of what could be, we endure the vulnerability and exposure it takes to make it real. We are the evolutionary hunters. Clearly the most important people in the world because entrepreneurs are the only source of consistent, positive human evolution. And we always will be.

Before anyone sends me messages saying, "Hey, you don't know your numbers." Or, "You're off," or, "You haven't done your research." Here's what this recording is going to be about. This is what this podcast is going to be about. I'm going to be talking about the crisis honeymoon period that we're in, but also just how dramatic this crisis is and how so many people really aren't recognizing just how challenging this is.

And first I want to explain what I mean by a crisis honeymoon period. I think a friend of mine put it really eloquently. I didn't watch a lot of cartoons as a kid, but I've definitely seen clips of this, you know in the road runner cartoons where Wile E. Coyote is running after the Road Runner and then the Road Runner does something to set him up near a cliff. And then at the last minute moves out of the way, or the Coyote runs through a canvas or does something. And he ends up kind of dangling over the cliff, out over the cliff. And there's that second before he falls, that is exactly where we are in relation to the crisis today in the United States. And I would say that in a lot of parts of the world, but specifically in the United States.

We are that Road Runner out over, off of the cliff and dangling out there. And there's been some stuff like stimulus money and some other things that are pushing hot air up towards that Road Runner or that Coyote to get him to hang there. But that Coyote is about to plummet and it's going to be dramatic and it's going to be a huge fall.

And I've experienced it before. So this is why I said like before you start making comments about how my thinking is flawed, my logic is flawed. Let me share my background with you. When the foreclosure crisis hit in 2007, I did what I normally do when I have questions. I turn to the data. I joke, in God, we trust all others bring data, and I want to see numbers. I want to see what's going on. I want to understand what's happening in a crisis. And in the foreclosure crisis, in 2007, I looked at the numbers and I determined that we were in somewhere from a 7 to 10 year housing crisis, in 2007. I went out and started sharing that data. I started telling people about it. I started putting press releases out about it, and I was mocked and made fun of and called chicken little and all types of other things. It was a very difficult period of time for me personally, because I felt like I was sharing information to help people and I was getting massive criticism for it.

Well, and here's what was interesting through 2007, 2008, 2009, I saw that repeated over and over again. Here's what would happen. As soon as a local community started seeing foreclosures and saw housing values come down, they would believe that the foreclosure crisis was real. But if they didn't see housing values come down, if it didn't personally affect them, they didn't believe the housing crisis was real. And I saw this over and over again from intelligent people. In fact, there was a point where, because of how mortgages were sold or closed or created, we could predict on a state by state basis where certain mortgages were going to anniversary and go up in their rates. And so we could say, "This is when this date is going to have a foreclosure crisis." "This is when this state is going to see double digit numbers." "This is when this date is going to really be hit."

And I would go into those states, talk to real estate agents, attorneys, title companies in those areas. And I would say, "Hey, this is what's going happen in South Carolina, Virginia, in Texas, in Oregon," and wherever it was and this is what people would always say, "Nah, I don't think it's going to happen here. We're not like New York. We're not like California. We're not like Florida. We're not like this other state." And it wasn't until it hit them that they started to take it seriously. In fact, we started shifting our marketing to go and sell our product that was a foreclosure that helped real estate agents work with homeowners to solve foreclosures. We would wait to go into an area until after the crisis had hit. We were trying to. get there early and help people. And it didn't work because people didn't the crisis was going to hit them.

Well, we are, we're seeing the exact same thing in this market today. And you know how I said, we're that Coyote off of the cliff dangling in mid air, we are falling from a very, very high cliff. Let me give you some details.

Just before this crisis. In January, February of this year, we had the highest employment rate that we've ever had in the country. More people had a job than ever before. We had the highest consumer credit numbers for the first time in history, consumers had $4 trillion in consumer credit. We had the highest consumer spending we ever had. We had the highest single family home cost, both used and new. We had the highest mortgage numbers that there ever has been in the United States. Automobiles had reached their peak, but they had peaked a few months before. So when you look at the United States, we were at the top maxed out of just about everything. It's almost shocking that, that's where we were.

And immediately in March, we saw this massive shift and this massive change. And so let me just give you some details about nationally what's happening with this crisis. So first you can go back to my videos from the beginning of this crisis, I've got crisis prediction, one, two, and three, I think, and everything that I've said in those videos or those podcasts has now come true. In fact, I challenge anyone to go listen and find anything that I said that hasn't come true.

What I said originally was this virus was going to act like a virus, it's scientific, it's clear in areas where there is low host contact and there's not a lot of chance for reproduction or for transfer, we're going to see numbers go down. In areas where there's high host contact and there is a lot of chance for reproduction, we're going to see numbers go up. We've seen that, it's clear. We see the states and the countries where they have had social distancing or quarantine or mandated mass usage, for the most part, numbers are coming down precipitously and in the states or the countries where there is not mandated mass usage or social distancing or quarantine numbers are going up. You look at Florida, Texas, numbers are exploding.

In fact, here in Texas, where I live, it's pretty personal to me. The numbers were going up for a while because our governor said we didn't have to do anything. We could go back to work. We didn't have to use masks. And then in just the past couple of weeks our very Republican, very anti-mask governor, has now said we have to have masks in any business that we're in. We have to masks when we can't be socially distanced because the numbers are exploding and here's what's happening across the country. Numbers are going up. I'm going to give you financial data in just a second. I first want to talk about the crisis.

Numbers are going up like crazy. And what's happening is we're overwhelming medical systems again, I know that there's a lot of people who think this is a hoax. I know there's a lot of the people who don't think this is real. I don't understand where they're getting that belief system or the information I've actually talked to my sister, who's an emergency medical doctor, I've talked to tons of friends of mine that are in the medical industry, talked to some people in Houston, I actually talked to some people in New York. I even talked to some people in Italy and Spain, when all of this was going on. This is not a hoax. It's very real. The people who are on the front lines will tell you that it's real.

In fact, I had a long conversation with my sister this weekend. I'm actually trying to get her to do a live with me because she's watching this up close and personal. And her opinion is that in California, because they socially distance and use masks and quarantine and slowed down the curve. Now nobody's taking the virus seriously. And it won't be until literally emergency rooms are filled and people are personally affected and there's body bags in the streets that people start finally taking this seriously.

That's what happened in New York. In New York, they had to bring in refrigerator trucks, back them up to the hospitals to take care of all the bodies. That is disgusting, but because it was in New York and not Texas, or New York and not Florida, people in other areas are not taking this seriously. And so we're seeing a natural increase when there's a virus that reproduces and is allowed to have host to host contact. We know numbers are going to go up.

Now, as far as wearing a mask and how political it's been and how all of these things have gone on. The fact is, it's kind of hard to argue with percentages. Is a mask effective 100% of the time? No, neither are seat belts. Seat belts will save you from injury about 45% of the time and death 50% of the time. We all use them because those are pretty good odds. If you're not wearing a mask and somebody sneezes or coughs in your area or on you in an airborne virus, you have a much higher chance of catching it than if you have a mask. Is the mask perfect? Is it going to protect from everything? No.

But if two people are wearing a mask, the percentage chance of transmission plummets. If there's two people in a room and neither one of them are wearing a mask and one's infected, the chances of transmission are as much as 70%. With two people, with one wearing a mask, it drops into the 30 to 40%. with two people wearing a mask, it drops to below 5%. I know I'm going to get called out for this. I know people are going to say that I'm making this up. I know people are going to say that it's not real numbers. At the end of the day, when you talk to medical professionals, there's a reason they wear a surgical masks in the surgical field. There's a reason when they're in an operating room, there's a reason why they wear masks when they're working with people. There's a reason they wear masks when they're communicating with people. It cuts the percentage chances of transmission way down. So in the areas where we're doing that, we're seeing the numbers go down. It's a pretty clear correlation.

Now let's talk about the crisis honeymoon period. Here's the issue that we're seeing right now is that the majority of people out there haven't been personally affected. In fact, I've seen a lot of people say things like, "I don't know anyone who's had COVID-19, how can this be real?" Well, talk to your extended network. In just our small team of about 12 people, we now know of at least one person who was related to somebody who's passed away. We know several people who are related to people who have the virus. One of our team members actually had a fever this morning, we're hoping she doesn't have the virus. And so as soon as you start getting personally affected, you start taking this a lot more seriously.

Well, whether you're affected by COVID-19 or not, here's the financial ramifications that are coming. Now this is serious. During the foreclosure crisis, I reported on numbers on a weekly basis. I was on television all the time. We, my small little company, shared the numbers we put together with both Fannie Mae and Freddie Mac, and they assimilated them into the projections they were making because we had a different lens, a different way of looking at the numbers.

Well, when you look at the numbers today, they are staggering. Let me just share some of these numbers with you. Residential real estate, there are about 43 million rental units in the United States. So 43 million people rent properties. Today, 7 million of them are delinquent. So 7 million of 43 million are not being paid. It's about 16% of total rental properties not being paid.

Let's look at residential mortgages, right now in residential mortgages, there is somewhere around 8% of mortgages delinquent. Now this has gone up by about 300%, just in the last few months. We're starting to look at numbers that we saw in the foreclosure crisis and we're only a couple months into this. Things are only going to get worse.

When we look at job losses, every week since the beginning of this crisis, we have had record job losses by a factor of two or three or five or six times. What the previous record was. The previous record was mid-600,000s in 1982. And last week we still had 1.5 million off of a previous record high, off of what would have been a previous record high. So the unemployment factor here is massive. This is just residential real estate and unemployment.

Now let's add in commercial mortgages. Commercial mortgages make up about 1.3 trillion total dollars of mortgages that are lent out there and they're there in the market. 30 day late mortgages from the beginning of the crisis and commercial have gone from 2.3%, which was near record lows to 7.4% last month. So 7.4% of commercial mortgages aren't being paid or no, sorry are over 30 days late. And there's an additional 8.6% that are in a 30 day grace period and are already late. So if you look at the commercial mortgages in the United States, 16% of them are not being paid right now, they're not in foreclosure, but they're not being paid right now.

And when you look at this, what's happening in the real estate market, especially in residential, not so much in commercial, but in residential, we have two things at play right now, eviction moratoriums, and foreclosure moratoriums. So in some states, right now, you can't evict somebody if you are a property owner and in other states, you can't foreclose on somebody if they're not paying their mortgage. So what we're seeing is this massive backing up of payments that are not being made.

So rent moratoriums, or sorry, eviction moratoriums do not equal rent moratoriums. If I'm a property owner and you owe me a thousand dollars in rent for the next three months and you don't pay it at the end of those three months, I can come to you to get that $3000. I don't just discount it or let you have it or write it off. I actually now can evict you. So in the rental market, we are going to see massive evictions start as soon as the moratoriums are lifted. I've talked to people in real estate, across the country and companies that do evictions, companies that process foreclosures are sitting on hundreds of files that they're waiting to process. They're just waiting for the moratoriums to come off.

So, so far, I've just talked about residential real estate, commercial real estate. And the fact that foreclosure and eviction moratoriums are massively delaying the pain. And so, now add on top of that, the factors of what's happened in the economy. When I say we're in a honeymoon period, we have not recognized yet just how devastating this is going to be. So when you look at, I just pulled three major industries, entertainment is down 39% quarter over quarter. Travel is down 45% quarter over quarter. Automobiles are down 39% quarter over quarter. So when you look at these massive reductions in numbers, by the way, the automobile number of 39% quarter over quarter is off of an already challenging quarter that ended with March. So when you look at these numbers, it's clearly this massive financial impact that we haven't recognized or realize.

And so when I say that we're in a crisis honeymoon period, we are in that period where if you haven't been personally affected, then you should look up, check out the data and understand that there is a heck of a lot more coming. We have not seen the lowest of the lows yet. And we have not, and I don't believe we've actually seen what's going to happen to the stock market yet, I think it will roll over and take out the lows that it had. I think we're going to see a massive impact in the commercial and residential real estate markets. I've had a lot of people say things like, "Oh, but Alex, you don't understand. There's no real estate available right now. Prices are actually going up." We are in a honeymoon period.

Here's what's happening in residential real estate. In a lot of areas, people are not listing their properties, people still have to move. So there is now a deficit of properties. It's actually a seller's market, which seems crazy given everything that's going on, that it would still benefit sellers, they're still getting the highest prices. Cadey and I just sold a property in California near the top of the market in a few days. And we are selling the property as much as we can right now, because this is a temporary condition and we're about to see a massive shift.

When foreclosures start getting processed in the states where they need to be processed, when they're where their judicial it's going to take a while. Here in Texas, foreclosures can take as little as 60 to 90 days. We are going to see massive real estate inventory be coming on the market. In the rental community and the rental market, 16% of rentals aren't going to be paid. Let's just say 5 or 6% catch up. We're going to see 10% of rentals become evictions overnight. When you start seeing this type of condition in any financial market, where there is fixed asset, or whether it's assets, where there's cash flow producing assets, here's what happens.

When they start going through all the foreclosures and the evictions, property values are going to come down. And when property values come down, there's this compounding effect that now anyone who has a small equity in their property, anyone who doesn't have a lot of equity in their property, now can very quickly go underwater. And so now properties are no longer transferable. It's hard to get out of them. It's hard to move around. I know mortgage companies are going to work with people. I know there's moratoriums. I know there's programs out there, but the sheer volume in this case of people who are missing payments on rent, are missing payments on their mortgages and have lost their jobs, is going to equate it to massive distress in real estate.

When there's massive distress and real estate property values come down. What does that mean? The entire property owner population starts losing net worth, starts losing wealth. And then the assets that we call homes are not worth as much money. So there's actual wealth sucked out of the economy. I believe we're going to see the same thing in real estate.

We're seeing the same thing in automobiles. In fact, automobiles are kind of a smaller example of what's going on. Used car values have gone down by as much as 20 to 25%, across the board. So when we see, that means all of the inventory of used cars sitting in everybody's driveway right now in the United States has gone down 25% in value. So if you had a car that was worth 20,000, it's now probably worth 15. So the average person who owns stuff like a house and a car is having wealth sucked out of their life right now that they don't even realize it's there. It's coming in the housing market. It's already there in the automobile market.

This compounded effect of losing wealth, having money dry up, having challenges in payments, having evictions and foreclosures is going to compound across the country. So here's what you should do with this. And by the way, if you have a gripe with something I've said, make a comment, I'll provide a source. I'll try and give you information on it, but do me a favor first, go back and listen to the podcast that I did on crisis predictions. And you'll see that at the very beginning of this crisis, I started making predictions and they have all come true. In fact, I even predicted that what we were going to see in the United States was state-by-state social distancing, masks and regulations. What they rolling in and they rolling out of how we can move around. So restrictions would go in, when numbers go down, they would go away. And then when numbers go up, they're going to come back. We're seeing exactly that happen. For me, most of this has been predictable.

I always share with people crisis is normal, crisis is part of the human condition, crisis is predictable. Viruses are normal, viruses are part of the human condition, viruses are predictable. This virus is actually acting exceptionally predictably.

So when we look at all of this, here's what I think you should do as an entrepreneur. Stack cash, create wealth, get as much money in as you can, cut your expenses anywhere you can. This is not the time to be doing luxury spending. This is the time to put money away. My wife and I made millions in the last crisis, tens of millions in the last crisis. This time we intend to do way better than that. We can see it coming. We know property values are going to go down. We know there's going to be opportunity all over the place for those people who have cash or access to cash. And so this is a time to be conservative. This is a time to simplify your business, to make sure you're selling people who actually need your product, to make sure you're delivering at the highest level, so that you continue to make money during this crisis.

And I want you to know something, it might sound like I'm negative, but I want to give you a perspective. I think this is going to create the biggest opportunity we've ever seen for those people who want to look at this in a realistic way. Whenever somebody tells me, "Oh, the crisis, isn't real. It's no big deal." I always think, "Man, you're just walking away from opportunity." This is one of the biggest opportunities we've ever had, the bigger the crisis, the bigger the opportunity. I'm not cheering it on. I'm just telling you that's fact. There's a reason why the yin-yang symbol, one of the oldest symbols on the planet, people say it means positive-negative, yin-yang. Well, one of the earliest interpretations is that in crisis, there is equal and opposite opportunity. We are in the middle of that.

So as entrepreneurs, here's what I think we need to do. Understand the data and the logic behind this crisis so we know what's going on. Watch the right numbers and the right metrics so that we can see what's really happening. Pay attention to the numbers, not the politics and the opinions and the social media. So you actually know what is happening in this market. And when somebody tells you, it's no big deal, just understand they are walking away from opportunity that you're going to take advantage of.

If you want help to make it through this crisis and you're an entrepreneur that's running a business, reach out to us. We would love to help you and tell you what type of programs we have, where we show entrepreneurs how to create bulletproof process, structure, and routine so that your business can overcome what's happening in the market, so that you can take advantage of this crisis and actually benefit from it because we should, it's here anyway. Like I said, I'm not cheering it on. I just want you to win in every situation, especially this one. And by doing that as entrepreneurs, here's what we're going to do.

We're going to rise above the noise, identify the opportunity, grab hold of it, get into momentum and take the world with us. What has, and always will get us out of this crisis is us making things happen. And if you want help to grow your business, grow your team and make sure that you come out on top during this crisis, go to predictablebusinesssolutions.com, answer a few questions for my team, jump on a phone with one of us and let us help you, or let us show you the solutions we have that not just help you through this crisis, but to help you build an incredible team. Stop feeling like you have to do it all yourself, build your empire and go out and change the world because it needs changing now more than it ever has. Go to predictablebusinesssolutions.com and do me a favor, share this with somebody you care about. They need to hear it.