Video Transcript

Toggle Timestamps

So I just wanted to share a few thoughts from a scan of Twitter this morning. I, I saw one post in particular that I'm gonna share clips from, from that with you. Uh And this is related to several things that I've said. I want to share this both to validate my prediction and also to which hopefully increases credibility for your consideration of other things that maybe are on longer time scales, but also to show you maybe a little bit of the method to my madness of why I spend so much time on certain things that you might not think are all that important. I think that in this case, when you get shocked with a $50,000 bill that you weren't expecting, that ends up being pretty important, the decisions we make ideally are based on cost benefit analysis. And if you're looking at cost information that's incorrect, that's based on assumptions that the the future will be the same as the past, it, it will hurt you. So, um I thought it was, it was apt that in this specific example, not only do we have the general principle that costs on certain things will increase all of the sudden, seemingly out of nowhere. It's not actually out of nowhere. It's because the mechanisms for driving these costs are part of complex systems. And so it's hard to see the whole picture all at once. It requires access to information that's not necessarily going to show up in your face without you looking for it. And it's also cross topical um that, that system that generates the cost, it's gonna be across multiple domains and normal people just focus on their normal lives. They're not looking at all these other things. But it was interesting because the specific example was with HVAC, which I explicitly talked about. Um the thing that, that piqued my interest on this was news reports of the current presidential administrations, unceasing drive to replace things that work well with things that cost a lot more and don't work as well in the name of environmentalism, which any sort of detail in the any sort of consideration of the details instantly shows is contrary to the stated purpose. But anyway, so let's get into this. So this person who I don't know uh popped up on my feed complaining about the cost of replacing the HVAC system on a 2000 square foot house, which from context, I presume he rents out now, I don't know why. But there's this, it seems like there's this assumption in the public amongst those who do not do this, that people who own more than one house, who own one or more rental units are these, I don't know, parasitical, extremely wealthy people who just sort of have a silver spoon implanted somewhere in their body and having known some number of these people, uh that has not been my experience. I mean , sure there are these multinational companies out there buying up real estate and renting it. But most of the people I know who have done this, including people that, that I have rented from or my parents have rented from. Uh neither of my parents owned a home while I was growing up and we moved a lot . And so that's, that's a pretty good set. But then I know people uh as I've become an adult, this is a very wise path to take for someone who is making a decent amount of money, but certainly middle class um just, just living below what they earned. This is a great place to put your extra money. But what I have noticed out of all those people is that I it's not like they are Scrooge mcduck sitting on this pile of gold, uh swimming in it and whatnot. They intentionally planned out this life and they sacrificed a lot to get there if they don't have tons of cushion if conditions change. And that it remains true even for the people who have built up many rentals. But but did that um in an incremental way with continued sacrifice. I know a guy who's got, I don't know, 20 plus rentals and he still does all the work himself. And so these are folks who, who are just in perpetual sacrifice mode building up for the future. And uh again, this is, this is I'm just, uh I don't intend to broad brush here, but this has been my experience uniformly. Uh And of course, it's anecdotal, but it's been uniform with all these people that I know. So the point is when their margins are tight and they are and things change like the government all of a sudden during COVID says, oh, it's ok, people don't have to pay the rent and we're gonna make it so the property owners can evict you. It's an enormous upheaval. And then if they're banking on those assumptions of continuity from the past, they end up defaulting on mortgages because they've planned out there, their strategy, their financial strategy with those assumptions in mind. So one of those assumptions is that it's not gonna, it's not going to suddenly cost 234 times as much to do the same work when you're doing maintenance on these units. This guy had to replace the H VAC system in a house. And um it's a little unusual because he actually had to replace the duct work as well. So that's a big job, but his expectation was around 30,000 and that was baking in the fact that there's been a lot of inflation but the quote came in at 45,000 and that's a very large increase. It's a kind of increase that he says uh and I've got a series of tweets here will absolutely prevent him from making any money on the property. So this is, this is a specific example with H VAC but I'm telling you this is going to be the case with more and more things. It's gonna be the case with cars. So you might look at this and say I don't own any rentals. It's not gonna affect me. Yeah, wait until they make some other harebrained decisions. Some other set of things messes up the supply chain and all of a sudden, uh, y your car becomes worthless. You know, I, I have a truck that is a decent truck. I did the research on it and, uh, it's not old but it's not new at this point. But I got a, a notice of a recall on the fuel system and with every recall I, I weigh out the cost benefit. Sometimes they're not a good idea, but I looked at this one and the, the, the, the danger, there's only one listed, uh, vehicle may suddenly stop working and cause death like it's pretty serious because if it just stops when you're turning into oncoming traffic, you're in trouble. And so I called to see how long it would take to schedule first. I called to see what part they were replacing it with because some of these, again, this is all just complexity. It's just another example of general patterns that I hope you're starting to see everywhere. It's a mess, um, with a lot of these recalls, they don't actually have a new part that solves the problem. And so they'll just slap another, a new, a new, uh, a new part that's the same design as the old part and it doesn't actually fix anything and it takes like eight hours sometimes to get these things replaced. You have to make an appointment way in advance and so you have to weigh it out if it's worth all the hassle and sometimes you end up in a worse situation. There was on another truck I owned, there was a, um, in emissions update that would decimate the value of the, the vehicle, the fuel efficiency would go through the floor and, uh, the engine would die earlier. All these really bad things that an uninformed consumer would have no idea . They just say, oh, the authorities say I should get this free fix. And so therefore I'm just gonna do what I'm told and then you go through it and you end up worse off. Right. That's the world we live in where it's not just, it's not simple anymore and you can't trust people. So anyway, even the people whose job it is to know they'll either lie to you or they don't know, because the complexity exceeds what even the experts can correctly contend with anyway. So I saw this and this guy is freaking out, understandably, right. But by the way, this is a renter, uh well, not a renter but a rentier, a person who rents properties. This is some random guy getting into it for the first time. He's been doing it for a long time. I just scanned a little bit of the context that, but these surprises, they're, they're cropping up on people left and right. They're exposing the inadequacy of, of people and the system to handle the complexity. So here are some of the responses on this thread. This lady who I gather it also has a house that she rents out um or she was building one for that. She says we were just rent recently quoted 50 K for a 2000 square foot house and that was new construction, meaning they don't have to tear anything out or redo the drywall. This is all gonna go in before the drywall, 50,000 for 2000 square foot house, right? And this one says 72,000 for a 3000 square foot house. Now, you wanna know why it costs so much to build today because every component in the system costs way more than it used to just four years ago, just five years ago. And so if you were building a house, you just sort of think of it as this package deal. Right. Well, the builder is not gonna sit here and line item the house with you. They just wanna do their rubber stamp, build the house and move on. And if you're building a house that's already built, uh, uh, I'm sorry, buying a house that's already built, but it's new. It, it's already gonna have all this in it. And you say, well, it's just, that's how much it costs. It's however much the price tag on the whole house is that's what it is. But now all of a sudden , people have this enormous incentive to dig into the details and, and a la carte value appraise each component of the house, which makes this a massively more complicated process. So, you know, I, I started looking for my first house. I didn't end up buying one at the time. Uh because I thought I was getting deployed overseas with the military, but I think I was 24 when I was looking for my first house. And I, I had lined everything in my life in the right way, made huge sacrifices to get to that point that my peers did not make for the most part. And so I was young, I was ready to buy a house. I wasn't thinking about how much the HVAC system cost to replace. You. Just trust that the system's gonna get the, like the process is gonna pay off. You just follow the path that other people have done and it's all gonna work out that doesn't work anymore. So, getting to the point on this, suppose you're in an area like you need to think about the cost of maintenance in the area you're going to live in because it varies dramatically from place to place. Not only that, there are many places, rural places, uh, a lot of people don't understand this. There are many places where you cannot get contractors to come to your house. It doesn't matter what you pay them. So think of. Uh, and, and this is from personal experience here. I'm not, I'm not imagining this. If your dishwasher breaks and you're not handy enough to replace that or diagnose it yourself. You're, you're gonna have to, I don't know what you're gonna do because you literally cannot pay somebody to come and do that. And you say, well, I'm gonna get a warranty so that when this breaks it, they'll replace it. And that, that's one less thing I have to worry about. No, because they'll sell you the warranty. But then when it breaks, they won't honor it. In some cases, they'll cut you a check and now you're back to square one because you have to do it yourself in others. You'll waste months. I'm not exaggerating months of your life. Calling this call center in India trying to work through four different connections for them to find a contractor , come out and fix your dishwasher. Because they won't cut you a check. And so these complexities, they just fester in life and they make life a million times more complicated than it was five years ago. So, if normal people are struggling with normal life, what do you think is going to happen when things get 10 times more complicated, it's happening right now. People in real time right in your face. And if you don't notice there's only two possibilities. One, you're too daft to notice and then you've got real problems because these things don't go away just because you don't notice them, they actually get worse. If you don't notice them. Two, it just hasn't happened to you yet. Now, that's a pattern that's playing out across all these different domains. I've mentioned it before with cancellation. People think that if they're normal, they don't have to worry about that because no one's coming for you . Yes, they are. Yes, they are. You just haven't noticed yet and when it happens, your life will get turned upside down and you'll say, what was me? How could this have happened to me? I wasn't expecting this. You know, this only happens for the weird people that do weird things. No, it's coming for you too. Yeah, you've heard the, the saying poop rolls downhill. It might start at the top but it's coming, it's coming and when the tsunami hits you, it will be deeper. So, continue on with this. Uh Here's another person who knows who says same, I guess, Tracy. But can we assume anything these days ? Same details except no duct work just recently. All in 30 k expected 20 tops. What's the difference between 50,000 is a 50% difference? And this guy says, I can't believe how quickly prices have gone up again. These are folks in the field. This isn't, oh, I am a novice at this and I just assumed that it would be no. Like with the my truck, I spend a lot of time looking into these things. I've bought many cars over the years. I've, I've uh done the research, paid the price for not doing the research, whatever. And online, I look up this recall and I see people saying, see saying that they've had a problem for two years, whatever. They're one of the unlucky ones. It turns out it's like 6% of the time this part breaks. So statistically, you know, unlikely. But if it does happen, you could die. So kind of a big deal. And a lot of these folks have just had to sell their truck and buy a new car. And it's, it's like if you put in all the work to specifically choose a model has the lowest cost per mile over the lifetime. It, that's not something you can just say. Oh, I'm gonna drive to the nearest dealership and, and get something comparable. Right. It happens all of a sudden, except it's not all of a sudden, it seems all of a sudden. And so this is a great example of another thing I said, which is the way people are gonna react to the costs going through the roof is that they're going to change the landscape of how they value things all of a sudden. So I mentioned if you, if you live in a place where it costs $70,000 to replace your H VAC system and it's hot. So I'd say that that maybe 50% or more of the population of the US lives in places where you absolutely would not want to live. If you didn't have air conditioning, you've got all these tail risks that are coming at you like cost of electricity , the fact that there's a growing contingent of people that think that they should decide whether you get to use it or not. Um And then things like this where the refrigerant that the United States government is intentionally making it harder and harder to get affordable refrigerant, they actually limit how much the industry can make per year. They say it's to save the world and really what it does is it just reserves those things for people that can afford to pay out the nose for them and there's very few of those people. So if you're living in a place like that, the writings on the wall, and this is just one reason of many to not live there. You never had to think about that before and now you do because if it's a difference of $70,000 it's a big deal. Unless you make a whole lot of money. Very few people who this happens to will just sort of take it in stride. Right. This isn't like paying an extra 10 cents per pound for chicken at the grocery store. It's a big deal. And there are a lot of big deals just floating and, and they're, they're like chickens getting ready to hatch. So you have to pay attention to this and think a lot harder about things like where do you live? Because if you live in a place where you don't need air conditioning, it's not something you have to worry about. So, um, my ac unit where we live, uh, it broke it. I think it was broken when we moved in and we've had people come out and take a look at it and I think $2000 into the process. And this is 10 years ago. I said , ok, we're done wherever it is right now, it's where it's gonna be. We don't need it. Just let's get the heating component working with the furnace and we don't need the ac part and we've made do, we've made other decisions to work around that. Um, and, and now it's to the point we put it off at the time because we, we, it was just a budget consideration. Now, with the increased costs, I don't think I'm ever gonna get to it. I'm not sure if we can even get the same refrigerant for it. Um, but if we do it's gonna cost, I think when I looked at it five times what it would have five years ago and it's just not worth it to me, but we absolutely need heat where we live and we have a propane furnace and we also have wood stoves. So there are ways where it could become much more difficult to get firewood, but that would require a lot more to change. So it's a much lower likelihood. So did you think about all that when you picked where to live? Are you thinking about it? Now, if you're thinking about where to move? So this is an example of one tactic people use what's on the screen. Now, this reply to deal with sudden changes in cost and benefit, you change your behavior sometimes in extreme ways because you've, you've probably seen the smaller ac units on businesses or homes that are being built right now. It's rarer to see these big heavy units, you see the little rectangular ones that go on the wall. Why is that? And, and the window units as well that I didn't put that on here. But one of the responses from someone was just put a window unit in every, in every window, it's cheaper. And when one breaks, you just throw another one in. You don't have to call the experts. So people wouldn't have done this before, but it's a big change. You'll see big changes. Ok. So hopefully that's not too much gloating . Hopefully it's actually useful. I'm reiterating patterns here. You're going to see them continue to expand. So, if you haven't checked it out, there's a playlist called Future Warnings on the channel and you'll just see thing after thing where I'm talking about what I fully expect to happen. And so I hope that as you apply those patterns, you'll see the cost benefit of long term consequences and be able to better position yourself for these things.