Jack Rabbit Investing: Sunday Morning Thoughts 29 August2010

The current stock market reaction is looking less like investing and more like “Jack Rabbiting”.   Investors’ are quickly pulling money from one place to another, and then moving their money to some other investment. 

Please do not confuse the term Jack Rabbit investing with moving investments strategically for a better return on investment.  The latter is a calculated move based on data about a potential investment. 

Jack Rabbit investing occurs when you have a stock market like the one we have now, a very bear market with even the best of companies lacking good profits. 

Risk is greater with our new down economy many people are looking to jump into an investment to make a quick buck, but this is not the type of market to do that easily. 

We now have a stock market with undervalued stocks set at much lower prices.  Buying the stocks now will enable a savvy investor to buy more of the undervalued stock and wait for appreciation.  One of Warren Buffett’s strategies is to buy stock in a company which meets his checks and balances.  He then holds the stock for at least five years. 

This same principle can be applied to buying real estate.  Instead of doing Jack Rabbit investing such as quick flips, buy an undervalued piece of real estate and hold for appreciation.  

It’s as simple as that, buy low, hold, and possibly sell high in the future.  

There are many quotes throughout the years about how real estate is dead.  Bu it never fails, real estate roars to the foreground and becomes the corner-stone of an economy. 

This is one of those times we are in now, real estate is undervalued in many appreciating areas and in areas down now but will appreciate again. 

You can either wait on the sidelines for the real estate market to rocket back, or you can capitalize on a market that will soon appreciate once again. 

 The Option is Yours.

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.

A Slow Steady Economic Recovery: Sunday Morning Thoughts 20 June 2010

First let’s start with a few tidbits that do not seem to have a reason in this posting.  But, these same tidbits will come back in future postings as their influences progresses in our economy.

Everyone seems to be welcoming the newly proposed flexibility of China’s Yuan exchange rate.  This will help lessen trade barriers with China.  At this point it is unknown whether this new flexibility will make the Yuan weaker or stronger than the US dollar; stronger is what Washington wants.

With May housing starts home building plunges but this is to be expected with the current housing glut.  With fewer new constructions starting this would help balance the current glut instead of making an even bigger issue of empty properties.  On the upside, there has been a rise in mortgage purchase applications last week, although it is too early to really tell the future impact.

The feds may keep interest rates low.  With the interest rates low more people will be able to qualify to purchase houses, even when the new reform bill passes the House and Senate.  Although it will be harder to acquire large lines of credit, the overall future impact will make it better for the economy.

One of the factors causing our current housing issues was caused by the average homeowner receiving interest only loans.  Interest only loans were for investors when they wanted to only hold a property for three to five years.  The loan was not suitable for families to purchase their dream home, because the reset of the mortgage payment would be greater than income, or they would not be able to keep up with the payments if the debts were too great.

The pace of the recovery may not be as fast as we all may have wanted, but slow and steady is better than fast as a rocket.  A rocket recovery would be unstable, going up fast and strong and plummeting faster and even stronger which in the short term would and only cause more problems such as a stock market crash.

A slow steady recovery will be a lasting solution to our current down economy.  While our economy is in a stabilization phase tangible assets are more attractive to investors.

Gold at this time is one of the most attractive tangible assets, but real estate should also be considered.

Why should real estate be considered if there is a current housing glut?

If nothing else time has proven real estate to be one of the best appreciating assets.  A down market is truly a buyers market; more houses are going into foreclosure, along with commercial properties, many of which are positive income producing commercial properties.