The History Lesson of the Stock Market Crash

Prior to the crash people were receiving higher incomes. With more income average people invested in the stock market driving prices up.  With an unbelievable amount of prosperity there looming in the background, was the thought of a stock market crash.

Then it happened.

Economist had warned of a crash, a bubble bursting, but it fell on deaf ears.  So then the tragedy began, the bottom fell out and everyone scrambled to keep from losing everything.

The world was succumbing to a global economical crash and a wide spread fear of a faulty recovery.

The banks began failing one by one, occasionally four or more at a time.

And don’t get me started on the whole immigration thing.

When reading this article please keep in mind the title, the history lesson of the stock market crash.

If history has taught us nothing but one thing, in time everything repeats its cycle.

The previous stated lesson is from the crash of the 1920’s the last quarter of 1929, October 24^th to be exact.

Back then a group of bankers pooled their money to buy stocks to convince others to stop selling their stocks, while in this century we experienced the Goldman- Sachs scandal, a legal pump and dump.

An Unethical confidence game.

Although there were rumors the bankers were secretly selling their stocks after the pooling and buying.  This would still be a legal pump and dump.

Unethical.

In the stock market crash of 1929 the bottom was not finally felt until July 8, 1932, an approximate time period of two years, nine months, and two weeks and two days.

Even today economist are looking at the stock market crash of 1929, comparing it with our current economy.  The global economy at that time was bleak, but not too long after, the healing did begin.

We started a new cycle of growth.

Our new cycle of growth is going to be small hops (as stated in a previous post) which will total one big leap when we look back a year from now.

A recovery is not an overnight fix.

At this time we should take advantage of the downturn before the upswing and invest in the one tangible asset that will appreciate in the very near future.

Commercial real estate is seeing more foreclosures and is due for even more, making the prices unbelievably low.  This low will not last more than two to two and half years.

The residential housing industry is also going to experience another down turn before its appreciation upswing.

As far as the stock market, well picking stocks like Warren Buffett is better than Jack Rabbit investing any day.  The Jack Rabbits seem to go broke while Warren is still making gains.

So think about where you would like to be in five years.

Would you like to be thinking about how you shoulda, woulda, coulda (sown) invested to (reap) profit, or will you be thinking about all that you are reaping because you realized it was time to invest.

Using your IRA to invest in Real Estate: Sunday Morning Thoughts 25 July 2010

Since 1974 a self directed IRA could be used to invest in real estate.  Some people are under the misconception that they cannot use their self directed IRA to invest in real estate.  An investment in real estate using a self directed IRA is a good way to increase return on investment, especially in a volatile stock market.

Using your self directed IRA is not the same as taking a loan from the IRA account.  Banks are not allowed to give loans from an IRA.

An IRA account also cannot be used to invest in collectibles such as:

• Artwork:  So you will not be able to purchase a Picasso or Rembrandt

• Rugs:  You will not be allowed to invest in the Persian rug from your vacation to NY or any where else

• Antiques:  The Ming dynasty Urn

• Metals, except for certain types of bullion

• Gems: Although Diamonds, rubies, emeralds, and sapphires are nice     but not in this case

• Stamps:   Purchasing the first stamp ever made gives you bragging    rights but funding cannot come from your IRA

• Coins, except certain minting by the US Treasury

• Alcoholic beverages: 1787 Chateau Lafite, leave it in the cellars of others if you were thinking about purchasing it from your self directed IRA

For more information on collectibles, go to the IRS website for publication 590.

Taking active use of a self directed IRA instead of leaving it to the topsy turvy stock market can be a lucrative option in our current economy.

Of course not all investments are guaranteed to have a positive return, but in the current real estate market the possibility of a positive return is more likely, especially from the stand point of being a private lender.

A private lender creates a loan to a person or entity with the property as collateral; in effect you become the bank.

As a private lender it is not your concern to pay property taxes, insurance, etc.  as with owning the property.  This would only become your concern if you were to foreclose on the property.  Even in a foreclosure you would still benefit by either selling the property or keeping it for cash flow to add to your self directed IRA account.

When deciding to use your IRA to become a private lender, remember not all custodians are created equal.  IRA laws do not prohibit investing in real estate but trustees are not required to offer real estate as an option.  Some custodians do not allow usage of an IRA for real estate investment.

For more information about investing in real estate using your IRA email or call us we will also send an e-book on cycles.  Everything has a cycle, this e-book explains how you can use this information in investing among other things.  For tax questions please call the IRS (800) 829-1040 or visit their website http://www.irs.gov/retirement/article/0,,id=111413,00.html#return

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.

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.