a message to investors & business owners [daily wealth]

Hey everyone, me Kevin here. This is a

message to all business owners and

investors as well as homeowners who

might not know what happened in 2007 or

even in the dot bubble. And I think it's

worth mentioning it now since we're

basically knocking on the door of

alltime highs just so you have it on

your radar and it's something that's in

the back of your mind. No, this isn't

some like bare video on a market

prognostication or whatever. the

market's V-shaped recovered ever since

we've been talking about setting

trailing stops just in case a bottom

falls out again. And none of those

should have triggered. It's been

straight up. It's been great.

Again, macroecon video. This is more of

a daily wealth style topic. Again, for

those of you with money, uh, or at least

debt.

So, everyone, okay, here's the thing.

I've mentioned in the past how it's

desirable, at least in these times right

now, to have a home equity line of

credit because if you have a traditional

loan at, let's say, 2.99% or whatever,

and you want some equity out of your

home, you can pull a home equity line of

credit and you could utilize that for

your business or for an investment or

really whatever purpose you want.

Especially if you use it for an

investment or business, you get to write

off the taxes on it, which is great. A

lot of people do this as well with

margin. And that's fine and dandy, but

here's one of the things to know. If

you're using margin on index uh style

funds like the Q's or the S&P 500, this

is less important. If you're using

margin, if they even let you, on

leveraged ETFs or on single stocks or

you have a credit line, business line of

credit or any kind of larger bank line,

here's what happened in the dotcom

bubble in 2007 and is likely to happen

again. when and if things start getting

shaky for banks where banks actually get

nervous, you know, like I don't know,

the CEO of the largest bank in the world

going on TV saying storm clouds are

approaching and we're not interested in

private credit right now and things

could get bad in the second half of the

year. Not like anybody like Jamie J uh

would say such things, but once that

starts happening, it's an early warning

sign that some of history could repeat

itself. There are people today that have

this sort of delusion that there will

never be a recession again because the

Federal Reserve will always print their

way out of it. This is very very very

dangerous because the Federal Reserve is

almost certain to be late. Remember our

peak crisis in 2008 was uh September of

2008. Our peak crisis in the dotcom

bubble was around the middle to end of

2002. The Federal Reserve was at least 6

to9 months late in both of those cases.

CO was a little bit of an anomaly. But

here's what happens with these banking

institutions. They can actually change

the ratio of your margin debt. So for

example, let's say you have margin on

Tesla stock and it says, "Hey, you need,

you know, to maintain at least 25% or or

whatever. That's your margin rate,

right?" They can adjust that and say,

"JK, you know, we think things are

getting shaky and volatility is going

up. We're going to bump it to 50% or

100%."

For a lot of people, that could almost

instantaneously trigger a margin call.

Broker dealers by right, by law, by

FINRA regulations can adjust margin for

any reason at any time. Most people

don't know that in their fine print in

their broker dealer contracts.

Please, I do encourage you to fact check

this with your own broker dealer

contracts. Upload them to AI. Do

whatever you want. I'm just referring to

the historical and what I learned when I

went ran through uh the broker dealer

licensing. The problem with that is they

can do the same thing with credit lines

at banks. So if you have a credit line,

a business line of credit or a home

equity line of credit, uh there is a

case or there are cases where banks will

not only freeze the line, we saw that a

lot in 2007 where they freeze the line.

They basically say, "Hey, no more

draws." But some types of loans, they

can actually even call them due and

payable or even potentially terminate

your relationship entirely with a bank

or broker dealer if they find you to be

too risky for whatever reason. That kind

of stuff happens in recessionary

environments or even leading into them.

It certainly obviously gets a lot worse

if you're in an actual recessionary

environment. Hopefully, it doesn't

happen. But the big message of this is

do be aware that if you are a business

and you're not diversifying that credit

risk you have and let's say you're all

in on margin at one broker dealer, it

might be worth diversifying some of that

margin to be, you know, against an index

fund or not have margin. Imagine that.

Set a stop-loss, right? Or uh make sure

you diversify where you have if you've

got a home equity line of credit at one

bank, maybe you have your business line

of credit at another bank.

it's uncommon for them to call a loan uh

do and payable and rather than just

freeze it, right? So, this could be just

extreme conservativism,

but it's something that I would rather

people think about in an environment now

where prices are very high and just keep

that in mind for your business planning

in the future. I'll give you an example.

Uh when I went to get a plane loan from

JP Morgan, they uh wanted to have what

was called a remargining provision where

basically they'd be able to reappraise

the aircraft every year if they wanted

to and and if they didn't like the value

or they thought the value had gone down

a little bit, they could basically call

you and say, "All right, now we want you

to add a million or $2 million or pay

off a part of the loan." And that's

crazy because, you know, that's the kind

of stuff that happens in bottoms, right?

where like you want to be buying the dip

on stocks and then you have some stupid

banker who's like high on the compliance

horse uh and they're panicking because

they're running out of money or they're

getting, you know, reamed in Congress

for some kind of new banking crisis or

whatever. Uh and you don't want to be in

that situation like that. So, what I did

is I actually told JP Morgan to go pound

sand. I go, "Thanks for the 15-year

relationship. You guys screwed me on my

plane loan. It's fine." Like, I didn't

do a loan with them because I I'm not

going to put myself in that situation.

So, I have a like the plane loan I have

is 20-year fixed. There's no prepayment

penalty. There's no opportunity to call

the loan. Like, there's no accelerated

clause in the contract unless obviously

you don't make your payments, right? But

that's on any loan. Uh so, like just

make your payments. Okay, fine. But

understand that business lines of

credit, some home equity lines of

credit, less so on home equity lines of

credit just because homeowners are so

protected, but definitely business lines

of credit. uh watch out for margin

especially a lot of people don't realize

that they could change the ratios and

the rules on you at any given moment and

that's a really big risk factor for I

think a lot of investors because there

is this belief that oh I'm so far away

from the you know margin call threshold

or whatever like who cares like you know

stocks that have to drop by 90% to get

margin called maybe they only have to

drop by 40% if they change the the

formula at the bottom now brokers don't

want to do that because they would lose

customers but they'll gladly do that if

it means protecting themselves from

going going bankrupt, right? Not saying

that happen, but if there are sudden

short-term shocks, these are the type of

things just to have in the back of your

mind. Hopefully, this never happens.

Hopefully, this is just the most

overblown, you know, worry wart kind of

conservativism video. But look, when I

put it this way, I think it should make

sense to you. House hack, we have over

$60 million of real estate assets, $13

million sitting in the bank. Why do I

say that? It's because we don't have any

margin. We don't have any bank debt. You

know, we've got a few convertible bonds

obviously because that's what we're

raising right now. You know, you invest

nonredit investor 5% yield plus the

upside in the stock, whatever. But we're

like super conservative and I know that

there are a lot of people with this mega

FOMO of like, oh, deploy it. You know,

why don't you buy Bitcoin with your 13

while you wait to buy real estate in Q3,

Q4? Oh, you know, why don't you uh go

buy stocks? Like, sure, we could buy

stocks. Sure, we could buy Bitcoin. Are

we going to do that right now? No.

Because I like the Warren Buffett

phrase. The Warren Buffett phrase that I

love is the best call option in the

world in uncertain times is cash.

Because it's a call option with no

expiration date and it's available on

every single asset class class. In other

words, that cash you have is a call

option on every asset class that exists

in America and there's no expiration

date. That's a fantastic way to look at

money and that's how we're looking at

money with with house hacking.

Obviously, you know, we're throwing

money in money markets or six-month

treasuries or whatever while while, you

know, while we're developing or

designing and and preparing to buy. Uh

so that way we're, you know, not losing

money uh on our capital. That's exactly

what Warren Buffett does as well. But I

think it's important for a lot of people

to think about that. I love that House

Hack owes zero to banks. I love that I

personally don't have margin debt or any

kind of debt that could be called. I

have no callable debt, no margin,

nothing. Like that's a great place to be

in. I can never get called by a banker

and be like, "F you, pay up. It can't

happen." Uh, and I think that while it's

really fun on the way up, you know,

credit and margin, all that, I do think

this is a worthwhile video, especially

for business owners because business

owners operating, you know, monthtomonth

on business lines of credit, not

realizing that that credit line could

disappear on you overnight because of

some stupid, you know, sofur shock, uh,

you know, standard overnight funding

rate shock or v spike or whatever.

That's scary. That's not happening right

now. But again, when it happens and I

make a video about it going, "Oh, it

happened. It was too late. You got

effed." That's why I want you to think

about it as an entrepreneur, a business

owner now. Anyway, hope you appreciate

this. See you in the next one.