Investors,

It is growing more clear to me everyday that we are on the verge of a debt crisis. Federal debt in the United States stands at a whopping $28 trillion. Corporate debt is $17.7 trillion. There is $1.57 trillion in student loan debt. $930 billion of credit card debt. And an astounding $288 trillion in worldwide debt.

Libertarian economists have been crying wolf for years that we are teetering on the brink of a debt implosion. Ultralow interest rates has led to cheap money. Cheap money has fueled rampant economic expansion. Rampant economic expansion has led to the addiction of the almighty dollar.

Despite the notion that a broken clock is right twice per day, anyone with independent thought should be able to realize what a predicament this debt ridden world has gotten itself into. Any incremental increase in rates throws a wrench into the cog of capitalism, leading to the downfall of money as we know it. The system is broken at the core and the elite ruling class knows this.

Given the over-levered and extended situation the world is in, there really isn’t anything to do, besides wait. That, and position our portfolios the best we can to survive the Armageddon of debt bubbles. My portfolio consists of asset rich companies, that generate strong cash flows, own real assets and could survive an all out collapse, should the end game come.

I own cheap stocks. Stocks trading at 1-2x free cash flow. Stocks with massive operating leverage to higher prices. And stock with hidden real estate assets that will appreciate massively in value with the backdrop of higher prices. Historically, holding equities through any inflationary event has been a solid move. Over a long enough timeline, equities have almost always appreciated in value.

There is one asset class outside of equities that will perform well in an inflationary period. That asset is real estate, with long duration debt against it.

Here’s the thing, if we ever enter into a massive hyperinflation environment, the value of all real estate will likely increase in value. And the value of all debt against that real estate will become worthless.

As many homeowners during the Weimar Republic years experienced, the debt against their houses effectively went to zero as massive amounts of money was printed.

When hyperinflation comes, not only will prices go up, but wages will go up as well as the worker demands to get paid more. Fixed debt will stay the same, essentially wiping out all fixed obligations.

Real estate is an extremely interesting investment class because you can use massive leverage against it to build wealth extremely fast. And when interest rates are at historically low levels, the cost to borrow become that much cheaper. Not only does the cost of borrowing become cheaper, but the valuations go up as demand is artificially increased.

I’ve been tracking the asset holdings of the elite political class and have found some interesting correlations. Almost everyone with multi-millions in assets owns stocks and good long-duration debt against fixed assets that appreciate in value.

The elite ruling class is using the ultralow interest rate environment in their favor. Ultralow interest rates are artificially propping up real estate valuations, allowing the elite to borrow against these assets at a higher valuation and at an extremely low interest rate. When hyperinflation hits, the debt will be wiped out and the elite will be left with free and clear real estate. It is almost as if it is free money.

Studying the way the ultra elite ruling class makes money is extremely beneficial. There are techniques that investors can use to their advantage to position themselves in the same way as the ruling class.

I took the liberty to track the real estate and debt obligations of our favorite U.S. Politician, Nancy Pelosi. Studying the way Nancy and the gang makes money and you will do well in life. I am highly confident in that.

Nancy Pelosi Real Estate and Debt Obligations

This data was pulled from Open Secrets and is public information for anyone willing to spend the time to find it.

Total liabilities outstanding are in the low range of $20.1 million to the high end range of $97.3 million. The majority of these holdings are mortgage debt outstanding or open credit lines against real estate and other assets.

Nancy Pelosi’s real estate and other credit liabilities:

• 11 Zinfandel Lane, St. Helena, California: 11 Zinfandel is sprawling estate and vineyard inspired by the Palladian Villas. This estate has a large guesthouse and a “Z” shaped pool. The estate also collects somewhere in the range of $5,000-15,000 in income from the sale of grapes. There is a 5,000 gallon per year winery on the estate with weekly tastings. The estate has a mortgage of $5 million to upwards of $25 million. The mortgage is probably borrowed at an ultralow rate of 2.5% — essentially free money.

• 45 Belden Place, San Francisco, CA: 45 Belden is a commercial office property in downtown San Francisco. Here is a listing for anyone who wants to dig more into this property. The office property has a mortgage liability of $1 million to $5 million. Commercial property can be borrowed against at under 4% these days.

• 25 Point Lobos Avenue, San Francisco, CA: 25 Point Lobos is a Walgreens pharmacy in a killer part of San Francisco. I am guessing Nancy invested in this asset for potential upside on real estate appreciation and while she waits she gets to collect a nice triple net lease for the next 5-10 years. This property is likely to get developed in the future as a Walgreens is not the highest and best use of the land. Estimated mortgage liability on the property is $1 million to $5 million.

• 11 Zinfandel Lane St. Helena, CA: Another liability on the vineyard. This one is an equity line of credit, not another mortgage. I’m guessing this vineyard is set up as an S-Corporation, allowing the owners/operators to pull an equity line of credit from the future free cash flows. Equity line of credit is pegged at a liability of $500 thousand to one million.

• 2640 Broadway, San Francisco, CA: I’m guessing this is one of Nancy’s homes. The address is pegged as a single family home on all public real estate listings. What is really interesting is if you Google the address, Google maps has it blurred out from every angle. This single family home has a mortgage of $5 million to $25 million against it. There is also an equity line of credit of $500,000 to one million.

• 3030 K Street, Washington, D.C: 3030 K Street is a luxury condo located in the heart of Washington D.C. It is described as a stunning waterfront condo complex located in Georgetown along the Potomac River. The five story complex was built in 1984. There is currently only one listing at 3030 K street with a price pegged at $950,000 for a small two bed unit. Nancy has a mortgage of $1 million to $5 million against this property and also an equity line of credit of $100,000 to $250,000.

• Brokerage Collateral Loan: Nancy Pelosi has a brokerage collateral loan estimated of $1 million to $5 million. This is likely a loan against the value of her stock portfolio. The ultra rich use this technique to borrow against their stock holdings so they are not forced to sell them, potentially triggering a capital gains tax. It is not unheard of for banks to lend at a <5% rate against a portfolio of $50 million. This is a key example of how the rich get richer.

• Brokerage Margin Account: Nancy has a margin account at her brokerage firm in the amount of $5 million to $25 million. It would be interesting to find out how much margin Nancy and team typically use on their high conviction stock ideas.

• U.S. Airways MasterCard Revolving Credit Line: The last item Nancy lists in her disclosure is a credit line with Barclays of $15,000 to $50,000. This credit line is likely used for everyday expenses with an ultralow interest rate compared to most typical borrowers.

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