House Rich, Cash Poor

Patrick (00:09.506)

So another cool thing is that with this platform, our I think like the 500 some odd episodes that we have, we're gonna bring them all over and they'll all the indexing will stay the same. And so it's like, yeah, we're gonna basically do everything within here. So we'll actually get quite a bit of tr because right now we get a thousand downloads a month.

on the you know, the five hundred so episodes, even though like w these some of these are like ten years old, but we still get downloads. So we still have a lot of traffic. 

Paul Seitz (00:49.944)

That's the advantage of the media, right? It works for you for life. Once it's out there, it continues to work.

Patrick (00:55.138)

Yeah, that I mean, couldn't have said it better. That's that's the point. Cause we're right now we don't we're not saying, hey, this is you know, episode blah blah blah. But once all the ones are on there and indexed, we can start using that. Cause that's I don't know, it's people, especially with podcasts, podcasts are fleeting. Everyone starts one, but then, you know, nobody really continues it. So this will help us at least kind of

maintain some of the momentum we created with those 500 episodes, even though we haven't done them in a few years. So all right, let's be let's do this.

Patrick (01:35.481)

Hey everyone, welcome to another episode of the Perpetual Wealth Podcast. We got a good topic today. We're gonna talk about housing, which is a big concern people have. It's one of the biggest assets that most American families have. Everyone, I feel, wants to have a home. Home ownership is, yeah, it's kind of considered the American dream. There's a lot of psychology behind the ownership of property. 

It's really one of the things that led people to cross the ocean several hundred years ago and come to the new world. And I feel that instinct, I actually know that instinct, not just feel it, but that instinct still is still there. And right now, given what's going on in the economy, a lot of people are prevented from being in the housing market, even though you know they want to own one, it's not really affordable. And others are keeping homes that they shouldn't be keeping necessarily given their financial goals. So we're gonna talk about that. We're gonna talk about the recent

Housing statistics, what's going on with prices, mortgage rates, housing starts, inventory, et cetera. And I have nobody better to have this conversation about than a man who lives in Hawaii now, of all places. Paul Sites. Paul, thanks, thanks for joining me. Paul's one of our well strategists at Paradigm.

And he has a background in nuclear engineering and in math. He commanded the USS Tennessee for several years, which is a nuclear submarine, and then retired and now has moved over to the financial services world and part of the paradigm team. So Paul, let you maybe introduce yourself briefly before we get into the topic today.

Paul Seitz (03:15.64)

Well, no, aloha and thanks for having me on, Patrick. That's actually a great introduction. You know, math background. I came out of the teaching world and realized quickly that that wasn't going to meet my financial goals. And also I just enjoyed the operational side. When I went into the Navy, I really enjoyed the submarine force and it taught me a lot about analysis and stress analysis and you know, safety factors and operations planning, all those things that really apply very well into the financial world, because if you attack finances without a plan.

you're planning to fail. And so it's you know, it's great to be a part of the Paradigm Life team and I've really enjoyed it. Great relationships with the people here. Gary Pinkerton, one of our other wealth strategists, and I served together in submarines many years ago. And so he kind of brought me into the fold here. And it's been a joy to be a part of the team.

Patrick (04:03.993)

Yeah, and Gary and I have had these conversations on the show before, but it's just interesting coming from a you know a military background where you essentially have like the stakes are life and death, right? If you know the well-being of the country and you know going into personal finance, it's interesting because life and death isn't necessarily at stake for families, and so it's navigating, okay, I told people what to do in the military and they did it. 

And now you give advice, tell people what to do, and sometimes people don't do it. Oftentimes they don't do it, even though they should, right? So really looking at it I would say, you know, personal finance, it's one part, you know, human behavior, left you know, right brain, and then one part, you know, logic and rational thinking and linear thinking. and it's really the the you know, symbiotic health of those two parts that that I think is the key to, you know, good a a good financial picture about

but you come in from an analytics perspective and obviously a math background, you understand the science behind it. But then you know, science, which is interesting, it's always the observation, right, and making sense of a nonlinear world which includes human behavior.

Paul Seitz (05:20.982)

Yes, and human behavior is definitely, you know, the intersection between the scientific that these are just the facts and the human behavior in the presence of those facts is an interesting field of study.

Patrick (05:31.288)

Yeah. Anyway, well, we could definitely do so many different episodes on that, but we're gonna get into housing. But I don't know. I I know you've studied, you know, Charlie Munger and Warren Buffett, obviously some of the most famous investors and also thinkers that are out there. but something that I've been really getting into recently, I I reread you know, board Charlie's almanac and

I have listened to you know some of his past speeches trying to get into his intellectual mind because I just think that they've become successful by doing something that's really different. I'm not saying that it applies today, but I think that you know some elements do. But inversion, right? Inversion is essentially thinking backwards. And thinking backwards is determining what's everything that can cause this to fail as opposed to everything that can cause this to be successful.

so I'll let you maybe talk about how you understand the principle of inversion and then we'll get into this quote here that says trying to be consistently not stupid instead of trying to be very intelligent is one of those keys to wealth, which is really interesting.

Paul Seitz (06:37.464)

You know, I like the thought of failure analysis. You know, one of the things just in civil engineering, for example, take a simple simple example. Just if you're gonna go build a bridge, you've got to look at every mechanism of failure. Unfortunately, we have a great history of failures, you know, from repetitive stress, cyclic stress, the wrong material for the wrong temperature. And so you go and back check all of those things before you even begin your construction. And then you gotta look at the geography. Where am I building this bridge? What are the wind patterns? Are there gonna be any oscillatories? You know, so

So you wanna look at all the failure analysis before you even start is critically important, right? You have to go look at those pieces.

Patrick (07:14.264)

Yeah, it's like what's everything that could go wrong? And then obviously history allows you to intelligently speak to that. There might be some, you know, there might be some hypotheses, right? Some guessing and opinion. but for the most part, you know, especially with investing and especially with personal finance, I mean, there we're pretty confident that we know the primary reasons why it breaks down, like the primary reasons why it fails. But people don't tend to be taught how to think like that. So

This is the quote, right? Which is, you know, trying to be consistently not stupid instead of trying to be very intelligent. So the example I used recently was when I was playing, you know, golf with a client, and he brought some friends. And one of the friends was just a really good golfer, but he hit the shortest drives, and he beat everybody by 10 strokes.

Okay, because he hit the fairway and he hit the green in regulation. That was his thing. Fairway, green in regulation. But golf, most people try to be Tiger Woods, Rory, Rory McElroy, Scotty Scheffler, trying to hit, you know, 600-yard drives. You know, not 600-yard drives, but really big drives. But what ends up happening is they're not professionals. They're not training their body day in and day out to have muscle memory. And so what ends up happening is.

You know, they hit one drive that's really long out of 10, and they, you know, score 10 points above the guy that shoots less. And you know, Charlie Munger uses this analogy with tennis, right? Where instead of trying to, you know, hit these aces on the serve, it's just trying not, it's just not making the common mistakes, hitting it over the net, hitting it within the lines. That if that's the focus, you're gonna win way more than you're going to lose.

So how does this apply to you knowing about investing? First, you have to understand why you know why a financial plan fails. What are all the reasons why it will fail? Okay, what are all the reasons why you won't retire? Okay, and it's kind of like you use it as a game, like what are all the things I have to do to not retire? Well, I spend everything that I make, I go into even, you know, I spend everything, everything I'm in, you know, that I have an impulse to buy,

Patrick (09:38.08)

I'm gonna buy it. And then I'll make all these speculative investments. And I mean the list goes on, but it's kind of a fun game because the idea behind it is when you go through that list, it creates a series of safeguards that you can protect against if you have a good strategy.

Paul Seitz (09:57.761)

Yeah, exactly. It's that sorry, I'm trying to stop my computer from making email reception noises by just shutting my email down.

Patrick (10:05.889)

Okay. Yeah, so maybe let's just transition then to the home ownership thing. So for this, all right, all right, I'll transition and then you can maybe comment on the transition. So this brings up the topic at hand, which is home ownership. So the question is, how can home ownership or your management of your home or the homes that you buy throughout your life make you poorer in retirement? So, Paul, like knowing inversion, how would you think about that question?

Paul Seitz (10:36.428)

Why it's a great question and it's an important one to ask ahead of you know, as you're starting your financial journey, because for many Americans, they view their home as their main savings account, the only thing and that's their only investment. And so now just just put yourself in that position. You've done nothing to save except pay off your mortgage, and now you have this house that is a paid off mortgage, but you have nothing providing you cash flow. Maybe you're living on social security, which right now is $2,000 a month. 

Where in America can you live on two thousand dollars a month, even without a house payment, it's very challenging especially since I live here in Hawaii. I mean, you couldn't make it through the third day of the month on two thousand dollars in Hawaii because the cost of living out here is very, very high. And so in many cases, like Hawaii Condo Homeowners Association dues are more than that or more than your social security check is gonna be in retirement. So if you live in a homeowners association, it's likely that you're paying more than that. So your cash flow

If you haven't resolved the cash flow and retirement problem, your house can make you poor because all of that equity is trapped and unusable in a paid off house. Then it is does it feel great to have a paid off house? Absolutely. Is that a good goal? Sure. But it's a good goal in the presence of other intelligent strategies.

Patrick (11:49.763)

Very well said. Yeah. And that's the idea, if this isn't like a specific binary, do this and don't do that. Okay. It's more about thinking about it, right? In the end, how could you leverage one of the biggest assets you'll ever have, right? To get the outcome feeling that you really want. Because in the end, having a house paid off outright gives you a sense of certainty.

That I don't think anybody can argue with. At the same time, if the mortgage payment you had when you actually started is now gone, and your tax bill, right, or your HOA fees, they've surpassed them because of inflation. So if you think about a fixed mortgage payment, you know, it goes down with inflation, okay, because it's fixed. And so the delta, right, the difference between it and the new money that you're making.

It's having a strategy associated with that, but also as you move from house to house to health, it's doing it intelligently. So let's get into just some of the stats that kind of back up what our, you know, what our hypothesis is. I think the first one, which is really interesting, which just barely came out, is that the median home price is at an all-time record. Okay, $440,600. All-time record. So you think, wow.

The housing market's doing awesome, like we're growing. But it's deceiving once you kind of read between the lines. Okay, because the majority of this increase has come from houses that have sold for more than a million dollars.

And that's the deceiving part, right? If you really look at these other stats, right? So four million, you know, per year, we're down, okay, which is the number sold per year. Then you look at the amount of time that it takes to sell. And then the mortgage rates keep going up, and home affordability keeps going down.

Patrick (13:50.081)

And that home affordability is really in the middle as far as the medium home price, medium income families. Right now it is dropping significantly. And it, and that's because I would say, you know, there are a lot of factors that play into interest rates. And one of them is interest rates, they're not just this like natural phenomena. It's a function of the money supply in the economy.

Okay, which continues to pump up asset prices. Okay. And there's a lagging of actual cost of living increases. So asset prices are going up at a higher pace than actual wages. And it puts a lot of people out of the housing market, even though they want to own a home. In addition to that, it's the you know.

Increase in car prices. It's the increase of you know living expenses, but it's also the volume, or not the volume, but the quantity of stuff people can buy. It's endless. And people are constantly bombarded with advertisements, pictures on Instagram of the new clothes they need to have and the new style for the summer and the vacation they have to go on. And I'm not saying any of this is bad, right? But unchecked.

Your cash flow goes to all those places, even though you want to own a home, which takes you out of the market as well, reducing supply. And that's why you have some of the stats associated with the median income in the United States. So what are your thoughts on that, Paul? Like how do you, as you've looked at this kind of conflict where $440, $600, right? It's gone up in value, but we have some of the, you know, affordability index continuing to go down month after month.

Paul Seitz (15:36.153)

Well, you say that that four forty dollar number is a median across the US. It just crossed a million dollars here on Oahu. So the median home price sale here in Oahu is over a million dollars. And you look at if I'm a young family just moving to Oahu to start my life in Hawaii, it is a huge challenge for them to get into that housing market. And so you would think, well, maybe interest rates will come down and that's gonna be great, but we're in this national catch twenty-two. If interest rates go down,

The odds of those house prices going up even higher, faster, is an increase. So it's a huge challenge for people to enter into that housing market. Certainly, you know, my own children are right in that phase where they're starting to navigate and think about what's the right time, what's the right place to buy. And having, you know, been in and out moving many times, I've purchased multiple homes over time. You know, my first one was $130,000 back in 2000 and at a I think four percent mortgage rate.

Those just aren't going to exist in the near future and even if the mortgage rates go down, the house prices aren't likely to follow without some two thousand eight type of housing crisis, which wouldn't be helpful.

Patrick (16:45.762)

And the other thing too, which I think again is it is we haven't talked about this. This wasn't actually part of the cards, but think about where rents are, right? Because rents have not grown at the same pace. And if you look at, you know, I'm especially talking about, you know, single-family homes. Okay, but typically single-family homes by landlords that are being rented out have a ton of equity. Some have no mortgages. Okay. And so you don't necessarily.

Patrick (17:16.28)

So what I'm basically trying to say is you have individuals right who have a paid-off home and they're getting rent, and the rent keeps going up maybe two, three percent per year, or every time they get a tenant, they raise it a little bit. But I did an evaluation of a duplex that we have the other day.

Patrick (18:53.596)

And it, you know, it's in a decent neighborhood. And so I could sell and the land itself is a lot. But I did a kind of a calculation of return on equity based on how much equity I have, my small mortgage, and then the rent that I'm getting, because my rent just keeps going up and it's like awesome, I'm getting this rent coming in. But my equity was like a four and a half percent return net, just given what my equity was. I was like, my gosh.

So it's one of those things when you, you know, when you evaluate the amount of equity people have, which is which is an asset and it has opportunity cost, okay, because it could be invested and get a return somewhere else, like every other asset, any other resource, okay, you have to evaluate it mathematically. And right now, if you look at where rents are, rents aren't going up that much. And so people are, you know, essentially renting more than they're buying, because renting is affordable. And looking at a paid-off home and the landowner or the home the landlord's.

Right. They just keep it rented because the cash flow keeps coming in. And this brings up, you know, an example with when I was on vacation last week and I get this, you know, the at our cabin up in the mountains, there they were, you know, they ring my my door and my ring camera a couple times, my neighbor, and he never does that. And he's like a really successful cardiologist, he's, you know, retired.

He's up there all the time. Like he kind of keeps an eye on the little neighborhood that we have up in the mountains. And I'm like, man, there must be something wrong. So I called him and he was like, Don't you know, don't worry about it. We can talk when you get back. I didn't know you were out of town, blah, blah, blah. So I get back, go and talk to him, and he's just in a really difficult financial situation because his cabin's paid off. He has a couple other homes that are paid off and his cash flow.

He just doesn't have enough to do to support his lifestyle, his retirement lifestyle. And he's like, I don't know what to do. Like I have this, this asset and this asset. And this is where the, you know, where the title of the episode, which is, you know, equity rich, house rich, cash poor. And so I'll get into some of the stuff that we talked about. But the idea is it's like this is this is the end result of someone who is, you know, financially really successful, had a very prestigious career, made a lot of money.

Patrick (21:09.485)

probably did all the things he was supposed to do, but winds up in this situation where he has this huge asset, okay, but really did not have an exit strategy from the beginning as far as who was gonna actually spend the money. So I know you had some comments, you know, some, some thoughts and feelings about that situation, because he's not the only one that's in that predicament.

Paul Seitz (21:29.293)

Well, especially, you know, if you've worked your whole life to acquire assets, it becomes very difficult to let go of those assets. And you and you get to a position where you're asset rich but cash or income poor. And now you're psychologically trapped where I don't want to release any of those assets because I just spent fifty years working so hard to acquire all this stuff, and you don't want to let it go. And that's a challenge. it and then you also have that just, you know, the equity in your house is only growing at the rate that the house itself is growing at. And so even though your net worth is going up, you don't feel it in the sense of quality of life because your cat it's not helping your cash flow. It's not giving you spendable money. It's just increasing your bottom line, but it's just a number on a spreadsheet at

Patrick (22:14.979)

Yeah, and I think that's one of the other I would say it's if you look at the math behind equity, right? Cause I think sometimes people feel like their house is gonna be more valuable if they don't have a mortgage than if they had a mortgage. And I'm not here advocating, you know, mortgages or reverse mortgages. I mean, there's a number of strategies that you can deploy to optimize home ownership. Okay. And it's and it's gonna be different just depending on the situation.

But the idea in the end is really to kind of bust some bust some mists, some sacred cows. Okay, because in the end, if you have a paid off house and you have a house with a mortgage, it's gonna grow at the same rate and the equity increase is gonna be at the same rate. The difference is if you have a mortgage, right, it's you know, there's opportunity cost versus a paid off house. Cause if you could pay off a mortgage, okay, that's money that could be somewhere else earning a return. Now you're subjected to the return that's gonna be earned by equity.

Okay. And so the idea in the end is, you know, not to like, it's not binary, do this and don't do that. It's more just really looking at inversion. Okay. Look at the opposite point of view. Okay. How do you become poor in retirement when it comes to your housing situation? Okay. And then understand what are the potential constraints to avoid in the future. And that's, you know, Charlie Munger, one of his other famous phases was, you know, inversion is like.

If I knew when and where I was gonna die, like I wouldn't go there. So that's the idea. It is like you identify what that constraint is, what that point of failure is, and you build a strategy around that not happening. So let's maybe let's maybe get into this whole idea that every asset is somebody else's, is either your income or somebody else's income. because it is your house, it's a 401k, it's a

It's business equity, it's precious metals, whatever, anything that has monetary value is going to be either spent by you or somebody else. And knowing that as the end result allows you to understand how to position now so that you get the ideal end result. Because in the end, why do you save for the future to spend money in the future? Period. Okay. And if you don't spend it, somebody else is gonna spend it.

Patrick (24:38.433)

So, Paul, as you've learned kind of this concept, how has that helped you look at like how you're meeting with clients, how you manage your own personal finances, when you understand, okay, every asset that I have, my retirement accounts, my pension, precious metals, home equity, whatever, it's gonna be either my income or somebody else's income. In order for me to live a a

you know, a good life, I need to make sure that my income is at the optimal level. And then if it is, anything in excess can then become spendable by somebody else. But it's more like taking care of your specific lifestyle support before that.

Paul Seitz (25:15.664)

Yeah, I think there's two things that really feed into that. Number one for me, and the thing that I like to really talk deeply with clients about is you know the purpose. What exactly is it that you are trying to build? Is it your intent to leave a legacy to your children? Which means I really need to make sure that I've solved assets, sufficient cash flow in retirement so that I retain this thing that I want to pass to either charitable giving or to you know, so if you have a charitable desire.

Then that changes how you plan for that retirement piece because I'm going to need enough income in retirement to make sure that I have a set number of assets to get me all the way through. That matters, you know, hugely. If you're a person that says, well, I actually, you know, I don't have any children, I'm not interested in legacy, I don't want to leave anything to anybody else. So that changes the picture on you know what the math is from, okay, so now you've reached retirement, you have these assets. What can I draw from those assets to ensure that you're gonna reach your full horizon?

And what are the other risks that we need to mitigate along that way? You know, is long-term care gonna be a problem? Is there anything else you know that could come up? So the security piece, the protection side, the things that can add risk and danger that need to be mitigated against all feed into that calculus. But for me personally, you know, I am deeply involved with my kids just on having that whole conversation. What are we as a family building together and what is the legacy of you know the Paul Sites family?

want to be over the next you know, we're sort we're already thinking about the next generations, you know, two or three generations down the road. What are we building for them in the long term? And that matters immensely as you look at your financial planning.

Patrick (26:55.351)

Yep. So those types of questions are paramount. And they're more questions that are outcome focused as opposed to you know input focused. And so you do that and it's not as I said, it's not this or that. It's both, right? You want to understand what's going on now and understand what the outcome it is that's going to achieve in the end. But also the principle of inversion is not just looking at what you want it to do as an outcome.

But it's identifying what are the things that can go wrong that would prevent that outcome and do so from the beginning, because that's gonna help build can you know what's the best way, your safeguards right against those events. You brought up long-term care, you brought up running out of money. I mean, if somebody doesn't, you know, want to, they don't have kids and they don't want to leave a legacy and they don't want to pass on any money, but they have a paid-off house, that's what they're gonna do. So it's kind of in conflict with what they want. But no one up front, then it allows you to say, okay.

All right, what are the strategies where that I can prepare for where if that ends up being the case, because you never know, if somebody says that at like 40 years old, well, I don't think I'm gonna ever get married, I'm never gonna have kids, I'm never I'm like, dude, really? You can't, you know, like you have no idea what's gonna happen, you know, tonight rather than like 30 years from now. So it's basically like, yeah, it's the flexibility, it's the optionality. but ultimately it's like when you when you understand the driving force, okay, and you account for that, but then you also understand like

Paul Seitz (28:05.934)

Life has a way.

Patrick (28:20.16)

Optionality and how things can be different just based on, you know, how life is not a straight line. It's all over the place. But then understand what the constraints and possible failure points are along the way. That's where you build a successful strategy.

Paul Seitz (28:35.28)

That's right. And life has a way of humbling us. The best laid plans, what Mike Tyson always says, everybody has a plan until they get punched in the face, right? And so that you've got to be able to take some of those punches and build a plan that is resilient, that is responsive to changing economic conditions, that's responsive to, you know, stress. You know, oil prices are up, you know, over a hundred bucks today, like a big jump today. And that's just it, it's gonna draw your attention away and strange things are gonna happen.

That you have to be able to react to.

Patrick (29:07.224)

Yeah, and that was, I think, one of the first episodes as we kind of re relaunched the podcast was like, okay, we got an MOU, right? It's not a contract. And it's like we have an MOU. Hey, we're gonna have all this resolved. And as you know, oil prices plummeted. And that led to, you know, a lot of a decline in you know price indexes. Now it's like, well, that MOU really wasn't a contract, it really was an agreement. And you know, we're seeing what's happening right now. So in the end, it's like this is human nature, right? Human nature and us all interacting with one another.

Patrick (29:37.31)

Even though we can think linearly and understand logic, it's that other side of the brain, right? We do, we're irrational. We respond to things irrational. So there's a lot of knowledge that we have of what those failure points are, but it doesn't mean that we're accounting for all of them. But at least thinking along those lines, you can at least create safeguards so that, you know, the failure points that have repeatedly occurred in the past, you're at least protected from them.

Paul Seitz (30:03.505)

Well, and I think I think the other, you know, that that asset becoming somebody else's income eventually is a valuable kind of thing to think about, a great framing. You just never see a hearse with a U-Haul. Now you're not taking any of it with you. And so the sooner you think about, you know, what is the disposition of these assets that I've worked my life to collect, how do I want to dispose of them? What is the plan for those? I think it is a valuable conversation to have with yourself, with your family, with the people that you love.

Patrick (30:31.672)

Yeah, and there's, you know, and with my neighbor, which I won't get into any of the specific details, but even though, you know, obviously with us, we advocate that the best asset to pass on if you're gonna pass it on is life insurance. Okay, so accounting for that from the beginning so that all assets become optimally spendable. and if you do spend through all the assets, now the life insurance cash values become your you know income of last resort, and then ultimately pay out tax-free. It's a great way to plan, but you have to do some of that strategy earlier.

Rather than later when you're 80 years old, it's not really viable. But at the same time, with you know, with my neighbor, there's still strategies, right? There are every every major university, and he went to medical school school at a very prestigious university that's huge, has a big and you know endowment fund and charitable department because of that, you can donate assets right now and get an economic benefit, sometimes monthly, sometimes lump sum, that you can live off of and use. Like all there's a lot of different opportunities, whether it's that or it's you know some

Charitable trust and entity structures that can give you a big benefit right now. But then you have to obviously follow through with donating assets at some point in the future, specifically upon your passing. So anyway, there's strategies for the majority, if not all, of the difficult circumstances that people are in. It just comes down to having the right team involved, understanding the principles.

And so that's kind of the you know a big point of what we're trying to communicate here is okay, look at things from as many angles as possible because it's going to lead to the best decisions that you can make. Now let's just get to a couple key, key things that I wanted to end with because these are just some, these are some ideas that most people are not aware of. and I think when we speak about a more contrarian perspective of personal finance, it doesn't come from doing the opposite.

Okay, well actually it does, but actually it does. But it's like, but if you look at really a lot of success out there, success doesn't come from doing what everybody else is doing. That's the irony. Okay, success really comes from doing things differently. So what I wanted to bring up, which you know oftentimes people just don't realize, is some of the most successful companies that are out there, and some of these are part of the Mag 7, like

Patrick (32:54.39)

They don't just have cash and a ton of income. They have a ton of debt as well. And they utilize debt strategically. And I'm not saying we're advocating debt. I'm just saying that debt and liability is a part of a financial structure. Okay. And so really looking at how the economy works, which is debt-based, inflation-based, that's not going away. Companies know this and it's hiding in plain sight because Apple. Apple's known to have more cash than sometimes the US government. Okay.

But it has 80 $85 billion in debt, which is obviously a lot less than the US government, but still a lot of debt. And one the famous things that they did, and I can't remember which presidency it was, I think it was in the Obama presidency, where if you repatriated capital, okay, which means that if you're making money in like the UK, like if US companies making money in the UK or making money in you know, other parts of Europe or South America.

If they brought that money back into the US, they would have to pay a tax on that. So people they didn't. So one of the famous things Apple did, right, is they just issued a bond against the assets they had, and that debt is tax-free. Bringing on that debt and injecting that capital is tax-free. Okay, so companies do this day in and day out, right? Alphabet, obviously they're gonna be putting

A huge, I mean they just released this as a news statement, but a huge amount of money into CapEx, that's not gonna come from just cash. They issue bonds, right? They take on debt to do that, but they understand the principle of investment and they're making big bets right now, which I think they kind of have to have. But banks are the same way, you know, Caterpillar, you know, these are just some stats on the wall.

But these are just signals and representations of companies that are successful, are growing, are moving forward, and how they operate their finances. And oftentimes when you read between the lines, you can pick up on clues. So, Paul, I know this is, you know, this is something I threw in at the last minute. Like what are your what are your thoughts on, you know, once as you observe success, right? As you observe how companies operate, how businesses operate, how you know investments operate.

Patrick (35:08.172)

Like, how do you interpret this from an engineering perspective?

Paul Seitz (35:13.282)

I think, you know, you I love the topic of cash on the balance sheet because, you know, luck is what happens when opportunity meets preparation. You know, could Apple retire of their debt and have less cash on the balance sheet? Absolutely. Except that having that extra cushion of cash means that when somebody when there's an opportunity that comes up that a company's it that is looking to be acquired is now a you know a great deal, you don't you can jump on top of that and and move more rapidly than saying,

gosh, that does seem like a great idea. But let's go through a year of fundraising rounds and bring on additional advisors and think and analyze. You're now in this position of analysis paralysis, but where you're when you're sitting in a position of cash on the balance sheet, you really have the opportunity to go attack new opportunities as they come to you. And when you're cash rich, opportunities do just seem to seek you out. You know, you you get in a position of where, you know, you're saying no to great opportunities because

you know that by staying in that position of cash, the best opportunity will eventually find you. And so I just think it's a question of managing your balance sheet wisely and having that opportunity to cash sitting around is such a huge benefit in the long term.

Patrick (36:26.614)

And most people are just like, well, you know, this is Apple, you know, and it's $147 billion of cash. It's like, that's not the point, right? Let's say that, you know, you position your finances where right now, you know, maybe you don't have much cash. Okay, but being in a position of cash, you know, given good strategy, gave you, let's say, $100,000 in cash. So it's like, what's the opportunity? It's not like an investment opportunity, right? If you look at a lot of what you know, Google has done or or

other companies with cash, right, they acquire discounted assets, right, at the right time. Okay, so a discounted asset could be because right now, I mean, Paul, there's like foreclosures are going up. There's been a lot of land foreclosures. There's been a ton of like repossessions on cars, defaults on cars. I mean, for a family, if you if you had cash and you bought you know a piece of land.

Right. The you knew was at a 50, 60, 70% discount, and you might be able to sell it down the road or build a house on or whatever. I'm just using that as an example. I've done it a ton of times with cars, right? And I've had, you know, people come to me and say, hi, I gotta get rid of this thing. And I wrote about one of the examples in the book. But it's like there's always those opportunities and cash, even if it's 10, 20, 30, 50,000, you could buy a discounted asset and save what you otherwise would have spent. So the idea in the end isn't to have billions of dollars in cash, right? Because I don't think that's reasonable for most people. But maybe in Zimbabwe you could have some, you know, trillions of dollars in cash. But the idea is to essentially have, you know, something in cash where when opportunity presents itself, you can capitalize on that. And I think, you know, this represents it here. But on the slide here, this is what's really interesting. It's like Berkshire Hathaway, and as they've kind of

Paul Seitz (38:13.424)

I would just you know, changed leadership over the last little bit. They've made some big acquisitions, but they had a lot of cash, a ton of cash, like you know, thirty percent plus. But family offices, if you look at you know, family office reports, they keep a lot of cash as well. Okay. So the idea that we typically recommend, right, is try to get between with, you know, and cash is a very this isn't like cash in your, you know, basement in or in your backyard buried in a tin can.

This is like liquidity, right? It's liquid assets, assets that are available within a short period, short period of time to capitalize on opportunities. But it's to maintain the highest return on your cash, but still get an equity, you know, have have a sufficient amount, 20 to 30 percent, sometimes more, in order to capitalize on these opportunities and be able to, you know, maintain that consistently as life unfolds and your assets are obviously going up in value.

Your life is changing, situations are changing, still maintaining that healthy cushion, not just for safety and protection, but for opportunity.

Paul Seitz (39:26.148)

Yeah, absolutely. And the only other thing I would comment on is that, you know, debt on the balance sheet is good debt and there's bad debt. If you're taking on debt to consume and you're just using, you know, Apple's debt on their balance sheet is not what they're using to pay payroll. That's equitized debt. That's debt that has a cash flow producing asset behind it. That's the same that's your mortgage. Your mortgage debt is a cash is an asset that is producing something valuable and the equity in there continues to grow as the real estate market grows.

Paul Seitz (39:54.938)

So that's not necessarily bad debt. But if you're taking if you're keeping debt, you know, if you're if you're carrying a credit card balance so you can pay extra on your mortgage, that's replacing good debt with bad debt, and that's not a great idea.

Patrick (40:09.624)

Cool. So we actually have. I didn't plan on saying this, but I'll put the link in the show notes. But we have a kind of a housing optimizer, a free software program. And also we have a car purchase optimizer that's also free. So it's basically an evaluation. You know, I'll use the car one. The car one it likes evaluates every single car manufacturer, make model. It has the average over the last 10 years depreciation rates, and it helps you evaluate should I buy this car cash?

Should I lease it? Should I do dealer financing or other type of financing, private financing? So it gives you, you know, gives you essentially a free application so that you can evaluate that type of purchase. It also does the exact same thing for your housing situation. So go check that out. The link will be in the show notes. But let's wrap up, Paul. I mean, this has been a cool conversation. So I would say right now, the call to action for you know, for those listening.

It is just to ask yourself some simple questions, maybe take some inventory. So the first one is you know, an equity audit, list all the properties you own. What's the equity that you have in that property, and what did it do for you in the last 12 months? Did it provide additional income? Did it provide addition, does it provide security, or does it do nothing? So another question you can ask for each one is whose income will this asset eventually become?

And then in this, in a sense, this helps kind of lay the groundwork for strategy. So write out the strategy in a timeline that you think would be, you know, essentially an optimal way to take advantage of the property that you do own. And I think a good list in there as well is doing the inversion, which is talk about all the things that could potentially go wrong or how your homeownership strategy could hurt you in retirement or failure retirement.

All right. And then the last thing we'll talk about is I I think this is, you know, we talked about this last time on the show, actually last couple times. But I think this is always just something I want to keep bringing up because as we mentioned in the beginning, the feeling of safety and security and certainty is sometimes the driving force, the majority of time, the driving force behind people, you know, paying off a home or doing this with their finances or doing that with their finances. Okay, it's an emotional outcome. And I think there's a collective emotional outcome as well.

Patrick (42:36.064)

Right, when it comes to where things are in the economy, and it is that those collective emotions and aggregate are typically juxtaposed to where the financial opportunities are. So Paul, I know you like this graph. Do you want to explain it briefly and maybe talk about the concept of where there's opportunities and then where there's risk?

Paul Seitz (42:57.828)

Yeah, absolutely. You know, this just kind of overlays psychology with the market with market strategies. Because what happens is, you know, oftentimes you watch the hot stock going up and you think, boy, people are talking about it at the water cooler, I better buy. And where you end up buying is at that point of euphoria and everybody's all excited about it. And then all of a sudden you get like today, Tesla went down 14%, which was a darling of stock. And so now you just bought yesterday because you're like,

My buddy at the water cooler told me Tesla's gonna do great. And today it went down 14%. Well, you're gonna have some anxiety. Now that that drop continues for a month, two months, three months, and you get into fear, and finally you're just like, I'm out, I cannot do it. And I capitulate right now, what changed about the asset? Probably nothing in reality. At least nothing that you could have possibly understood. I don't have any insight into the Tesla board meetings or what their real production numbers are. I have no idea. I just, you know.

But we make decisions based on a lack of information based on this emotional curve, which leads to some very bad financial outcomes over time, quite often.

Patrick (44:05.153)

And there's also that, like, you know, this was, you know, last year, but it's like Tesla's stock was going down because people hated Elon Musk because he was helping the government become more efficient, which is also ironic. But it's like, you know, a stock going down because of that. I mean, that's not the fun, those aren't the fundamentals of pricing. But what we're trying to say is that pricing is not fundamentals always, right? In fact, emotion these days, I think, has a bigger influence on what's going on in markets than ever before, because Paul

Patrick (44:34.624)

I mean, there really aren't water coolers anymore at offices. Okay. There's, you know, whatever. We have a beer fridge at our office. Actually, they got rid of the beer fridge because the DPS ski company, DPS skis has our home headquarters here and like the beer disappeared like every day when they stocked the beer fridge anyway. T you know, TMI. But, you know, yeah, the point I'm trying to make is.

Patrick (44:58.112)

It's like, yeah, you're essentially the emotional drive behind decisions is typically what causes the opposite behavior. So looking at you know this specific graph, it's when there's euphoria, fear of missing out, okay, and it's all over social media, which is the new water cooler, okay, it's all over the news headlines, which need eyeballs and they drive eyeballs based on knowing what your emotions are and what your instincts are gonna respond to.

It's always at the you know, it's always the opposite as far as where opportunities are. When there is blood in the streets, when you have the height of fear, that's the time to buy. When you have the height of greed and fear of missing out, that is the time to sell. Now it's not just stocks or bonds, it's everything, right? It could be cars, it could be real estate, it is you know, it could be the job market as well.

So anyway, my point is it's like really paying attention to number one, the aggregate emotional pulse. There's indexes out there, whether it's the VIX or the Fear and Greed Index by CNN, you can pay attention to that. but also take an emotional pulse. Take an emotional pulse about how you feel about your finances. Okay, if you're in this height of euphoria but don't have a logical reasoning behind it, don't have the you know the failure map planned out. Don't have those safeguards.

fully mapped out because you understood everything that could go wrong. Okay, that's just a sense of feeling that you have. Be very cautious about that feeling. Capitulation, which is when there is ultimate fear, it's understanding why. And then how can you flip that? How can you set up your financial life where it could be the zone of opportunity as opposed to the zone of failure?

Okay, Paul, this has been good. Thanks for coming on. Yeah, 'cause you're several hours behind us, but I mean, Hawaii's a good place to be. I think you're loving life out there.

Paul Seitz (46:55.386)

Yeah, I mean it's not suffering. I I really appreciate you having me, Patrick. It's been great and I enjoy your insights and just hearing the way you think and frame some of these things. So I really appreciate it.

Patrick (47:05.848)

No worries, we'll do one of these in the next month or so. So yeah, hope everyone enjoyed Paul as his first time guest, he'll be coming on again. because yeah, his insight, it's kind of like we have very different opposite ways of looking at things, right? And I obviously have an economics and math background, but I've just realized that personal finance is way more about emotions than it is about math and economics. But you coming from a very detailed oriented life really has and and Gary as well has really added

A good perspective on where math and science and economics fits into the personal realm. So thank you for your insights.

Paul Seitz (47:43.822)

Yeah, that and that is the antidote to that fear and greed index, right? If you have the data and you know that the data is reliable, that really helps you to solve that anxiety piece.

Patrick (47:55.298)

Hundred percent. Well said. All right, everybody. Hope you enjoyed the show today. You can go to perpetualwealth podcast dot com or look at the show notes for the links that we've mentioned. But can't wait to see you on the next show. See you next week. Take care, bye.