The Re-Evaluation of Money and Mortgages: Sunday Morning Thoughts 24 October 2010

Image by Toban Black via Flickr

President Obama recently asked the Bank of China to reevaluate the Yuan to raise its value.  This would help make the dollar weaker against China’s Yuan, making it easier for America to compete in the world of exporting.  The hope of this strategy is to help keep jobs in the United States instead making it more cost-effective to manufacture abroad.

Sounds good in theory.

If China were to reevaluate the Yuan to a higher value, then manufacturers would probably reevaluate the use of China as one of the many low-cost manufacturing places.  With China’s current booming economy the next back up for manufacturing has been Indonesia and Vietnam.  Companies such as Nike have already moved the bulk of their manufacturing to these countries.

So even if the Yuan were reevaluated to a higher value, this would not necessarily return manufacturing jobs to the U.S.  The cost to manufacture in America would out weigh the product, making it more expensive and harder to afford.

With the reevaluation of money in world markets, one would begin to think of the reevaluation of our current banking system.  The New Reform is slowly taking place colliding with the halting of foreclosure due to paperwork problems.  The process of foreclosure is not halting, but proceeding in court has halted to make certain all paperwork is in order.

Re-evaluating properties in foreclosure has now become more of a problem for the banks, which they did anticipate.  The investors in notes, mortgages secured by property, are now clamoring for a refund.  This is very understandable since they were promised good notes, and not bad notes.

Investing in a good note is the amount you will pay for a note that will later mature and generate passive income.  A bad note is also a good investment but from a different stand point.  An investor would not pay as much for a potentially non-producing note (bad note), when compared to a producing note, (good note).

Law suits are to be expected for the fraudulent selling of notes.  The lawsuits will more than likely make mortgage policy stricter and bolster the use of the New Banking Reform watch dogs.

So, how can an Investor profit from all this Bad News?

Well, opportunity is knocking, purchasing non-producing notes at a deep discount and acquiring the property for resale.  Purchasing producing notes, at a deep discount because other investors might not want to deal with the banking issues to come; and then profiting from the passive income generated by the note.

The DOW 12,000 Get Set Go: Sunday Morning Thoughts 17 October 2010

With the DOW falling by 31.79 points one would wonder, how will we see a 12,000 DOW by the end of the year?

The DOW only took a decrease towards the end of the trade day, when the consumerism reports came in weaker than expected.  The belief, if people are spending less money will it equal the economy backsliding?

Granted we have a teeter totter economy but stability will happen, but only when money becomes more readily available.  Currently, people have been using cash instead of credit to make purchases.  This means people are not spending money like water any longer, but are holding onto their incomes tighter than before; disposable income no longer has meaning.

People are bracing themselves for the next down turn; which could happen if China decides to call our loan.  If President Obama can persuade China to reevaluate the yuan (covered in a previous post originally titled The Yuan, The Yen, The Dollar and the Euro now titled What is the value of money), then this will allow us to become a competitor in exporting, or at the least, manufacturing things here as cheap as sending it to China.

As long as China keeps the yuan devalued then the U.S. and the countries using the euro will suffer the loss of exporting, and possibly lose ground in our perspective domestic markets.

On November 11, 2010 there will be another G20 meeting.  Maybe persuasion will work when all leaders are together.  But, at this point China will dominate in exportation as long as the yuan stays undervalued.



Stocks, and Bonds, and Mortgages Oh My: Sunday Morning Thoughts 10 October2010

This week has proven to be a time of many revelations.  The stock market has seen the dollar gain strength to only start falling short of expectations.  The Fed’s are possibly going to lower interest rates to help the slow moving economy to pick up speed.

And now President Obama has had to veto a bill that would make it harder on already suffering home owners when it comes to foreclosures.  The Senate obviously did not read the bill before voting.  As for mortgages-whether defaulting or originating -things are about to get even trickier and stricter than before.

What comes to mind, how all this will effect my investments, and is the New Reform Bill currently working?

The bill is slowly being implemented.  Keep you eyes and ears open for more updates.

The Bond market is rumored to be on the verge of a bubble about to burst.  But as you watch the video, predicting a bubble that will bust, is not as easy as you think.

Is A Bond Bubble Forming? Economist Burton Malkiel talks to Steve Forbes about the trouble with bubbles.

A final note on mortgages, as we have all heard Bank of America, JPMorgan Chase, and Ally Financial are placing some of their foreclosures on hold.  No doubt to check the paperwork.  Although halting the paperwork, will not halt the foreclosure process.  So once the paperwork is in order then the foreclosure will happen.

Many courts have been throwing the request for foreclosures out, due to multiple errors in the paperwork.  A temporary pause could cause pressure later.  Like when water is held by a dam then the dam is removed, the rage of the water causes more damage than if it were allowed to flow freely in the first place.

A false lift to home prices could happen in some areas if almost all of the foreclosures are halted for an area with a lot of impending foreclosures. If only a few are halted then the impact would be slight to minimal at best.

By no means will the temporary halting of foreclosures turn this better than buyers market into a strong seller’s market.  Instead of buyers stopping a new purchase of a home, one may want to take advantage of this new Bad News and invest through a short sale.

The lenders may be more apt to work towards getting a short sale approved instead of losing money on a halted foreclosure.

Our Topsy Turvy Economy

With the stepping down of Obama’s lead financial advisor Christina Romer one would begin to wonder who will take her place.   According to Reuters there are three candidates Austan Goolsbee, Jared Berstein, and Laura Tyson.

This news of a prominent member of Obama’s financial advisory will possibly impact the stock markets, causing foreign investors to be more apprehensive of America’s economic recovery.

This new change in the presidential financial advisory, mixed with higher unemployment and stagnant growth in many sectors, the stock market for Friday will likely end down.

But the cycle for this month of August is a negative ending of the DOW.  This prediction is based on previous cycles.  When looking at the previous cycles of the month of August plus lagging unemployment, sluggish consumerism, and the dollar losing more value it is not hard to predict that the month of August for the DOW will be a non gaining month.

Conversely, tangible assets are going up at a steady pace.  Gold and silver are gaining more on a daily basis.

Real estate is not too far behind with some markets seeing some slight increase in price.  Although another wave of foreclosures in residential and commercial will soon be coming.

Warren Buffett defined the difference between investing and speculation in this famous passage from his book, The Intelligent Investor:

The most realistic distinction between the investor and the speculator is found in their attitude toward stock-market movements. The speculator’s primary interest lies in anticipating and profiting from market fluctuations. The investor’s primary interest lies in acquiring and holding suitable securities at suitable prices. Market movements are important to him in a practical sense, because they alternately create low price levels, at which he would be wise to buy, and high price levels, at which he certainly should refrain from buying and probably would be wise to sell.

Now is the time to invest in real estate.  Take advantage of the market being low and having an abundance of real estate that is due to appreciate.  For more information on how to take advantage of our current real estate market http://www.BackedByRealEstate.com