The Consumers and Investors are Not at the Gates:Sunday Morning Thoughts 18 July 2010

The DOW, NASDAQ, and the S & P all ended the week in the red.  Friday’s down turn of the stock market hinged on a few factors, one being the banks such as Bank of America, Wells Fargo, JP Morgan Chase all reported less than anticipated second quarter revenues.  This falling short of expectations for the banks coupled with sub par consumerism mixed with the New Reform bill to soon take place has made many investors nervous.

The new rumor, we may slip back into another recession, but at this point even with the skepticism we are poised to maintain a slow and steady recovery.  The strides we are making now are small little hops, which when we look back a year from now, when all totaled will equal a big leap.

For some investors, government securities have become the new safe haven, but with so much interest in the government bonds the prices rose as the yield went down, paying more to earn less is not a great strategy.

America is not the only country at this point feeling the struggle of growth out of a bad economy.  United Kingdom announced it is the equivalent to 5 billion dollars in debt.  The Nikkei this Friday was much like the DOWJIA closing down by over two hundred and fifty points.

When we look at all the factors for our recovery, the stalling is mostly due to the reaction banks had to the outcome of the sub prime lending.  They tightened the reigns of credit with only a 30 day notice of severely increasing consumer’s interest rates.  Some consumers became bad credit risks due to the banks drastically cutting their credit limit to just above the amount owed.

Basically, if a person had a credit card for $12,000 and owed $3,000 towards the balance, this would only be 25% usage of the credit.  In our current economic times, the banks have been cutting those higher limits down to just above what is owed.  So what was once a $12,000 credit limit with $3,000 owing, it becomes $4,000 credit limit still with $3,000 owing.  This radical decrease causes the credit usage to shoot up overnight to 75%, this would make the person appear as though they were irresponsible with credit.

There should not be a wondering why consumers have fallen off of purchasing.  With credit dwindling and interest rates sky rocketing, buying anything above the necessities would be a frivolity.  Many consumers have moved towards making purchases with cash or debt cards instead of with credit cards.  People feel more in control with keeping themselves and their transactions liquid.  All things tangible are driving the stock market while all things cash will help keep consumers from sinking into deeper debt.

Cutbacks, Down Stocks and other Economical Tragedies: Sunday Morning Thoughts 4 July 2010

This week in retrospect has seen many changes.  The banking Reform Bill has made its way to the house for final approval.  California State workers wages have been rolled back to minimum wage, $8 an hour, with a promise to have withheld wages paid retroactively when the budget is balanced.

With hiring in the private sector being weak, this shows the recovery is still going at slow speed.

The oil spill does not look as though it will be cleaned up any time soon.

The close of Wall Street on Friday was the worst week in the past two months.  The S & P 500 (click the link to read about the impending “death cross), NASDAQ, and the DOW all fell before the start of this holiday weekend.   The DOW fell below 10,000 again, but as time has shown it will rise this coming week.

One thing that has been noticed is the real estate sector.  With a housing glut and more to come from single family homes to commercial property, the market will probably experience another down turn making even more people upside down on their mortgages.

Although on the horizon will be the Reform Bill for banks.  The bill will tighten the rules for being able to extend credit.  This will in turn cause higher interest rates and lower available credit to consumers.  This action is a double edge sword.

This action of banks having to have more money in the bank to be able to lend means, the outstanding credit banks currently have will have to be reevaluated.  The banks may respond with more charge offs and higher interest rates, which will cause a possible decline in the economy.

The power to give people lower interest rates will cut into profits for the banks, but the alternative of increase interest rates is actually a worse option.

The DOW drops under 10k: Sunday Morning Thoughts 6 June 2010

As predicted two weeks ago, the DOW has gone under 10,000. Friday 4 June 2010 also witnessed the NASDAQ and the S and P end with a loss. These are more market corrections and foreshadowing of more to come. The economy has been on a strange roller coaster ride for quite sometime now. This roller coaster will probably see a strong come back in the stock market followed by sharp down turns.

One reason for the loss in the stock market, foreign investors being skittish of the American market with the three reports of this week coming back showing losses; the retail, car, and housing all showing loss. The unemployment rate has only changed marginally, also showing the American economy is not coming back as strong as investors and non-investors would like.

At this point our American economy is being beaten by our own efforts of regulation. The banks are experiencing near record highs of charge-offs and non-performing assets. This is causing a glut of bad debts for many banks which in turn is leading the bank into receivership. We, the American people are feeling the after shocks of an economy gone badly by the actions of most banks. The first reaction was to cut credit limits to what the person owed, causing a person with good credit to look like a bad credit risk. As if that wasn’t enough the banks charged off on people.

People with a good payment history, proper use of credit, now having the deck stacked against them with an excuse of being a high credit risk. The credit risk situation only exists because of the actions of the bank. In short, the banks are trying to protect themselves by “cutting off their own noses” so to speak. Then the banks raised the interest rate due to being a credit risk.

All of this is adding to the strain on our economy and the world economy.

At this point investors and people able to buy property will be the saving grace of a global economy gone sour.

Creative financing is the only thing that will overcome the current credit crunch. With the plummeting of many exuberant markets, now is the time to invest in real estate; being able to invest in the future of a tangible asset instead of a fund in a market of volatility.

Each property we look at is a stand alone property; the property does not rely on another deal. This is one strategy that will only increase earnings in the short term and equity and liquidity in the long run.