Welcome to 2011: Sunday Morning Thoughts 2 January 2011

Image via Wikipedia

With the New Year underway we are all looking more hopeful towards the immediate future.  This past holiday season showed signs of the return of consumer confidence.

All signs indicate we are still slowly emerging from our deep recession.  It is a slow process, but nonetheless we are emerging.  Consumerism from the holiday numbers looks like it is making a comeback, with a usage of cash instead of plastic.

Although the DOW almost made it to 12,000, it is now going into another cycle.

As for the housing market, even with the recent interest rate hike, will remain a flat line, then a sudden down turn and on to leveling out and slowly appreciating.  In the coming weeks you will hear and read more from many analyst about the impending double dip in the housing market.  Actually a good thing for investors; there’s always a silver/platinum lining to all clouds, buying now for homes, office space, and apartments deserves more than a light consideration.

Leveraging your money as a private lender can earn a nice return without the headaches of ownership, so if you don’t feel like owning an income property then make an income with being a private lender.

The Rising DOW and Falling House Values

Image via Wikipedia

It seems as though with the raising of the DOW property values are on the decline.  The DOW, even in its unsteadiness, has made more gains over the past few months than real estate.  As long as the DOW maintains its cycle it will end the year with a positive gain.

 But, what about property values?

With the onslaught of more foreclosures and less and less successful loan modifications, property values will continue to decline.  This means you will be finding more and more deals, especially since credit lending is becoming tighter.  Loose lending practices which landed home owners in the current foreclosure mess are now a thing of the past, or are they just taking a break for now.  Our past banking system has taken a bad toll on our economy. 

The economy will not improve until people begin to feel more secure, and lending institutions become more accountable with the extending of credit.  More individuals are continually moving towards using cash only at the registers, and at home are using scissors on the once preferred method of spending.  

Will being a liquid society help the economy to stabilize and have growth? 

Becoming liquid will cause a slow down in the growth of our economy.  How many people are able to buy a car, house, or any other big-ticket items with cash only?  It takes time to earn, and save. 

Does this sound like bad news?  Yes in a way it is.  But if you are able you can take the bad news and turn it to the benefit of yourself and others.  How can the average person extend a helping hand to a snowballing problem?  By understanding the principles of arbitrage whether it be negative, neutral, or positive.  Money invested wisely can make money no matter which arbitrage is present. 

So which is better the DOW or real estate?  Learning to capitalize on situations with diversification is best.

The DOW 12,000 Get Ready

 

Image by dalechumbley via Flickr

 

The DOW is poised and ready to hit 12,000 before the end of the year.  There are many things, including the current cycle, which factor into the greening of the stock market.  Don’t let today fool you.

The weaker dollar (read “What IS the Value of Money” blog post) the fed’s lowering interest rates to historic lows-cheap money if you can get it-, unemployment not changing too much, and the halting of more than one million foreclosures.  All this is more attractive to domestic and foreign investors.

How will this impact America, an improving recovery.  The recovery will still stay slow but the pace will pick up a little bit more.

The real estate market will also benefit with the halting of many foreclosures.  This will be a false positive improvement for the real estate market.

The foreclosures are only halting to perform a final check of documents before going to the judge for court approval.  So the process of foreclosure will continue but will stop to ensure there are not any mistakes or oversights.

It only makes sense for lenders to do this; it is already costing the lender legal fees to start the process of foreclosure.  To go to court only to have the foreclosure rejected and then have to check paper work for inaccuracies and then return to court to take another stab at it, is only costing money and time, neither of which is currently in great abundance.

Investors can leverage all this new information to increase their portfolio’s value.  Remember there is still an avalanche of foreclosures on the horizon and money is cheap but hard to get.  So, investing in real estate will prove to be the best investment in the long run.

Stock Market 11,000

Image via Wikipedia

We are well on the way to a Dow Jones Industrial Average 11,000.  Although this past week it has not been looking very good for the stock market, the DOW’s dip thongs have proven to be a roller coaster ride of holding ones breath before a sudden drop then the exhilaration of a pull up hill to yield better returns.

 

But will it stick?

 

Once before we experienced the DOW above 11,000, the market had rallied so well.  The bull market had kept the bear away and everyone reaped the benefit of an over valued stock market.

 

Well, today we flirted with the DOW 11,000 but by the end of the day will we be saying it was an anomaly, or a foreshadowing of the weeks to come?

What IS the Value of Money?: Sunday Morning Thoughts 15 August 2010

What is the value of money these days?  According to the latest currency market close, the euro has been pushed down to its lowest in three weeks, to the equivalent of $1.27 in US dollars.  The yen is also down against the dollar.

The dollar on the other hand is up higher than it has been in the last two years.  But that may change in the coming weeks.

When looking at the dollar compared to the Yuan, one Yuan is the equivalent to 14cents US, so it would take 7.15yuan to equal $1.  One Yen equals 0.0116 dollars.  This is good for an exporting country. It would be cheaper for importers to buy goods than to make the same comparable goods in their homeland.

In the world of exporting keeping your currency down will aid in domination of a particular good/item.  As of Friday August 13, 2010 the Bank of Japan is reevaluating the yen to weaken its value against the dollar.

August 6, 2010 President Obama pushed for “made in America”, another way to help strengthen the dollar by backing with what the Federal Reserve Note was intended to be backed with, the hard work of the American people.

But this may not actually work with the weakening of the yuan and the yen.

The euro on the other hand is also a note much like the US dollar.  Issued by the European Central Bank, and is representative of the collective work, such as good produced, consumed, and exported, along with the addition of the government spending of the countries in the European Union.

So the original question, what is the value of money?  Zero, until you spend it which in effect gives it its value.  For tourist in a foreign country the exchange rate at the time they spend the money is the value.

In watching the stock market one can see the value of currency fluctuates.  In our current Global economy, the heads of the dominating G20 governments are watching and calculating how to best end the recession, or at least bring economic stability to their own countries.

With paper currency having an unstable future, many investors are moving toward tangible assets, gold, silver, and oil have been consistently up or only experienced slight downs, unlike many stocks which have seen skyrocketing and plummeting days.

In the background of all the issues with the DOWJIA, NASDAQ, and the S&P, real estate is slowly rebounding, with appreciation to follow.

Why Real Estate is a profitable tangible asset for a diverse portfolio: Sunday Morning Thoughts

Although consumers are spending less and new housing contracts have also fallen off, investing in real estate can still be a profitable asset in any portfolio.

We are now in a buyers market with many deals all over the place.  So many deals in fact that no two investors ever actually have to out negotiate each other for a deal.  No need to be one of the first to find a deal, although looking for lucrative deals now which will have considerable appreciation in the future is a better strategy for our current real estate market.

Let’s take a better look at this buyers market.  It has evolved into a buyers market because of the abundance of foreclosures, and even more foreclosures to come.  All the foreclosures are not just from the housing segment.  The commercial segment is now beginning to have the projected foreclosures and will continue to rise.

Currently many people are plagued with the thought of the economy getting worse, which it will with the lessening of consumerism and an increase in bad debts.

To keep the housing market from falling further down the Federal government might extend the homebuyers tax credit until the spring, losing it now will only cause a rapid slow down in home purchases.

With so many housing deals, why haven’t we seen an upward move in the housing industry for purchases?

Simple answer, credit tightening and a larger down payment required by lending institutions.

An investor can profit from this seemingly bad situation by being a private lender.  The purchase agreement would not be for thirty years like a conventional loan, but for a period of five years with an extension of contract if necessary.

This would give the investor a monthly or quarterly payment which more than likely will exceed the interest amount of a CD, money market, or even their current investments.

There isn’t a guarantee of payment but the tangible asset is part of your portfolio.  If the buyer were to not make the payments, in effect disregarding the contract, then the lender could foreclose on the property.

The answer in how to avoid a negative experience is to only hold a loan for a person deserving of credit.  Lending institutions are having money issues and are turning away many good people.

So at this time, in this buyers market, we have banks in money crisis not able to lend, people with 15-20% down payments and stable incomes but unable to get home loans.

Private lending makes more sense than playing the stock market in an unstable economy.

Visit us at http://www.BackedbyRealEstate.com to sign up to be a private lender.

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

Realistic Investing vs Speculative: Sunday Morning Thoughts 01 August 2010

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.

This statement can apply to the new wave in investing, binary options.  This is a loose example of how binary options work; the premises is to state whether or not a stock or commodity will go up or down in the next ten minutes.  Although this is a rather pedestrian look at the inner workings of binary options, this is basically the way you play the hand.

If you picked up on the poker, or card game reference, this is what binary options sum up to be, yet another casino game.

Currently on the trading floor a lot of speculation has been transpiring.  Many investor newsletters are giving their predictions for stocks, commodities, etc. to have in their portfolios.

When choosing to invest you will have to have a proven earning strategy to see a return on investment.   Not matter how you look at investing you will always be speculating or projecting on a number of factors.

Studying the cycles is also a proven strategy to help increase a return on investment.

Everything in nature has a cycle.  To better understand the cycle of things is to watch and make note of changes.

The changes could be obvious or very subtle.  Noting the changes in the cycle we can then project what will likely happen next.

The housing and commercial housing market also have a cycle, when the prices go up drastically in any given area that same area have a hard bottom.  Examples would be Stockton, CA and the Inland Empire.

The house prices in those areas where going up up up almost everyday by leaps and bounds.  Then suddenly the market in those same areas fell down just as hard.

The Inland Empire was a growth area in the late eighties then became a declining area a short time later.  Fast forward to the late nineties, the same area was growing past its highest peak.  Then with all things fell as sharply as it went up.

If you were to invest now in the Inland Empire the starting strategy would be to hold the property knowing it will appreciate as in times before, and then sell the property right at the peak or slightly before the peak.

The stock market also has a pattern because all things in nature follow a cycle.  This is one of those rare times when all really does exist.  But also note within a cycle are also more cycles contributing to the larger cycle.

In real estate the job market fell in the early nineties with companies cutting back to purchase stocks back from their investors.  For our current housing market the down turn initiated from the sub prime lending and over extension of credit; similar to the late eighties early nineties.

So with all cycles now is the low time in the market, the time to buy and hold.  Appreciation is waiting.

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.

Was That The Recovery You Asked: Sunday Morning Thoughts 11 July 2010

Answer, NO.  Not all of it, there’s more to come.

We are in the midst of the recovery.  Currently the stock market is correcting itself from our past transgressions.  The stock market ending on an up for Friday is good but don’t be surprised on Monday when the market opens down but closes moderate.

This type of activity is normal in a stable recovery.  We are going to see many ups and downs, peaks and valleys in the stock market, the overall will be a slow movement up for the stock market.

At this time foreign Investors being squeamish towards the American stock market is with good cause because we are in an unstable time of the recovery.  One good push in the wrong direction, and we will be looking down the barrel of a long Depression much worse the one from the late 1920’s.  Many of our own American Investors are showing indecisiveness with jumping from stock to stock just for a moderate fluctuation in the price of the stock.

The investments showing growth from week to week are tangible assets such as gold and silver.  The current market prices have not been this high for a very long time.

Suffice it to say, a tangible asset is a good investment.  Real estate is also a tangible asset which has a lot of influence on the global economy.  Now is the time to make sound investments in real estate.  When this tangible asset starts showing strong signs of improvement it may be a long time before it will be this affordable again.