Remember when policymakers at the Federal Reserve told us in 2007 and 2008 that the credit problems were "contained" to the subprime mortgage sector? Or when then-Treasury Secretary Henry Paulson spouted the same line? Oops.
We've already established how those guys were dead wrong about home loans. Indeed, the delinquency rate on U.S. mortgages surged to a record 9.12 percent in the first quarter of this year. Late payments rose in ALL categories, including prime fixed-rate loans, the absolute "cream of the crop" in the mortgage world.
Now, it's clear they were dead wrong about the entire credit market! Credit losses and delinquencies are rising anywhere and everywhere, and I've got the numbers to prove it.
In the first quarter of this year, the credit card delinquency rate shot up to 6.6 percent ... a record high. RVs ... HELOCs ... Personal Loans — Borrowers Can't Pay Back Anything! Get a load of these hot-off-the-press figures from the American Bankers Association (ABA). In the first quarter of 2009 ...
•Home equity loan delinquencies increased from 3.03 percent in the fourth quarter of 2008 to 3.52 percent.
•Home equity line of credit delinquencies rose from 1.46 percent to 1.89 percent.
•Credit card delinquencies rose from 5.52 percent to 6.6 percent (measured on a "percentage of dollars outstanding" basis).
•Direct auto loan delinquencies increased from 2.03 percent to 3.01 percent.
•RV loan delinquencies increased from 1.38 percent to 1.52 percent.
•Mobile home loan delinquencies increased from 2.96 percent to 3.70 percent.
•Personal loan delinquencies increased from 2.88 percent to 3.47 percent.
The home equity loan delinquency rate is a record high. The home equity line of credit rate is a record high. The credit card delinquency rate is a record high. And so is the level of the aggregate consumer credit delinquency index that the ABA has been putting together since 1974!
What about CORPORATE credit quality? Any "green shoots" there? Nope.
-The default rate on junk bonds has almost quadrupled to 9.5 percent from 2.4 percent a year earlier, according to Fitch Ratings.
-A University of California economist just predicted that a whopping 20 percent of hotel development loans made in the U.S. may default over the next year and a half.
-Standard & Poor's just said it's planning to slash ratings on more than $235 billion worth of commercial mortgage-backed-securities. Loose underwriting, falling asset prices, slumping rents and rising vacancy rates are wreaking havoc on the entire commercial real estate sector.
What's the Problem? We Had the Biggest Credit Bubble of All Time, That's What!
Slumping rents and rising vacancy rates are wreaking havoc on the entire commercial real estate sector. Americans simply borrowed and spent way too much during the halcyon days of the early-to-mid 2000s. They were counting on ever-rising home values to bail them out from high-risk loans.
The lending industry actively egged them on, as did policymakers at the Fed, who kept interest rates too low for too long. The insanity spread to commercial real estate ... to corporate buyout loans ... to virtually every corner of the credit market!
Now, we're all dealing with the hugely negative consequences of this massive credit bubble. What a shame! I can only hope that borrowers, lenders, policymakers, and regulators behave more responsibly in the future.
In the meantime, I continue to suggest the following: Stay away from sectors vulnerable to deteriorating credit quality, tighter lending standards, falling home values, and falling commercial property prices. That includes banks, insurers, home builders, and REITs.
And what about all the talk out of Washington on how these companies are just fine, how the economy is recovering strongly, and how happy times are here again?
Plug your ears and lash yourself to the mast! These guys didn't get the mortgage crisis right. They didn't get the credit crisis right. And they sure as blazes aren't getting the economy right, either. Consider: Just a few weeks ago, politicians on Capitol Hill and policymakers at the Federal Reserve were tripping all over themselves to discuss the "green shoots" in the economy. Now, they're openly admitting they screwed it up.
Joe Biden spilled the beans when he announced that the administration had "misread the economy." Vice President Joe Biden said last weekend that the administration "misread the economy." Their hopelessly optimistic projection that unemployment would peak at 8 percent — has been thrown in the trash. The unemployment rate has instead climbed to 9.5 percent ... and double-digit levels are right around the corner.
Heck, you now have key officials, like Obama adviser Laura Tyson and House Democratic leader Steny Hoyer, talking about the possibility of a SECOND economic stimulus package. That's a tacit admission that the $787-billion package enacted in February is failing to get the job done.
Again, this should come as no surprise to you. Unlike the ivory tower economists in Washington, we live in the real world. We know how bad things are, and how serious the risk is that they'll get worse — MUCH worse. So we've been warning you constantly to avoid risk, and batten down the hatches for a worsening economic storm.
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
Friday, July 10, 2009
Wednesday, June 10, 2009
What the Dramatic Turn in the U.S. Saving Rate Could Mean to You
During the past few weeks of exciting "green shoot" news, a very important economic statistic has been ignored: The U.S. saving rate.
U.S. citizens have been saving less and less since the early 1980s. And the saving rate even turned negative during the height of the real estate bubble. But in April, the personal saving rate in the U.S. surged to 5.7 percent, a 15-year high. That represents a massive trend change and has important consequences for the future. But before I address them, I want to remind you of ...
The Formula for Prosperity
Let's start with an example of a very basic economic thought ...
By following the simple formula of "save and invest" over long periods, individuals —and nations — grow wealthy.
You can use the results of working at your job in two distinct ways: Either you consume, or you save. If you consume all the results of your work, the whole story ends immediately, no wealth is generated.
However, if you sock away some money, the savings are invested — either directly or indirectly by using an agent such as a bank. In other words, as long as you don't hide your savings in your mattress, the money is being put to work someplace else.
The goal of investing is to have more money in the future than you have now, so that you are able to consume more in the future than you can in the present. This is the very definition of wealth generation. And by following the simple formula of "save and invest" over long periods, even over generations, individuals — and nations — grow wealthy.
Bottom line: Saving is the precondition to wealth generation. There is no way to short cut or fade this economic law. And this formula does not work backwards, meaning that it is impossible to consume or to borrow one's way to prosperity.
Wealth Personal Saving Rate Plunges ...
During the second half of the 1990s, the U.S. saving rate started breaking down. That's because Alan Greenspan's stock market bubble kicked in, and people had the illusion of wealth generation without the need to continue saving.
In 2001 the saving rate hit the zero mark for the first time, and then got even worse! Reason: Greenspan's monetary policy started the biggest real estate bubble of all time, and people were further lured away from the concept of saving. They took on debt like never before. They relied upon rising stock and real estate prices to take care of their future prosperity.
To make matters worse, this absurd idea was massively promoted by the central bankers who never called the bubble for what it was. They even tried to rationalize it instead of issuing appropriate warnings.
The rest is history: The bubble burst and together with it the dreams of millions of people. And the worst financial and economic crisis since the 1930s started to evolve.
Thanks to the Current Crisis, It Seems as if Americans Have Finally Come to Their Senses!
Over the past few months the situation has changed dramatically. The wealth illusion, which was fostered by the Fed-induced dual bubbles, is finally gone.
The Baby Boomer Generation, some 78 million strong, has realized that planning on rising stock and real estate prices to meet their future needs has led to huge losses.
This wealth destruction has unveiled a massive gap in retirement provisions. All of a sudden many Baby Boomers have started to worry about how to finance their old age. They've suddenly realized that consumption and indebtedness are not the way to prosperity. Consequently, they've started to cut back spending and save more.
In fact, shortly after the recession started in late 2007, the personal saving rate surged from zero to 5 percent. A short pullback followed. But then what looks like a new and healthy uptrend developed.
The U.S., world capitol of the "buy now, pay later" attitude, is undergoing a huge shift. Saving is making a real comeback.
This change in attitude is in all likelihood just the beginning of a long-term trend that will be with us for many years to come. In fact, I expect a lasting return to the country's former saving rate of roughly 10 percent.
The Consequences, Both Good and Bad ...
To close the gap between their current assets and their retirement needs, Baby Boomers will have to save more and spend less. Saving is the precondition for a better future. And finally Americans are abandoning the track of more and more indebtedness, which unquestionably leads to decline and poverty.
So long term, a rising saving rate is very positive. It's laying the foundation for future growth and prosperity. In the shorter term though, this trend has rather unpleasant implications, particularly in the area of consumer demand for goods and services.
As I already mentioned, Baby Boomers are now facing retirement and don't have much time left to close the gap between their current assets and their retirement needs. So they will have to cut back their spending, which does not bode well for the economy or the stock market.
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
U.S. citizens have been saving less and less since the early 1980s. And the saving rate even turned negative during the height of the real estate bubble. But in April, the personal saving rate in the U.S. surged to 5.7 percent, a 15-year high. That represents a massive trend change and has important consequences for the future. But before I address them, I want to remind you of ...
The Formula for Prosperity
Let's start with an example of a very basic economic thought ...
By following the simple formula of "save and invest" over long periods, individuals —and nations — grow wealthy.
You can use the results of working at your job in two distinct ways: Either you consume, or you save. If you consume all the results of your work, the whole story ends immediately, no wealth is generated.
However, if you sock away some money, the savings are invested — either directly or indirectly by using an agent such as a bank. In other words, as long as you don't hide your savings in your mattress, the money is being put to work someplace else.
The goal of investing is to have more money in the future than you have now, so that you are able to consume more in the future than you can in the present. This is the very definition of wealth generation. And by following the simple formula of "save and invest" over long periods, even over generations, individuals — and nations — grow wealthy.
Bottom line: Saving is the precondition to wealth generation. There is no way to short cut or fade this economic law. And this formula does not work backwards, meaning that it is impossible to consume or to borrow one's way to prosperity.
Wealth Personal Saving Rate Plunges ...
During the second half of the 1990s, the U.S. saving rate started breaking down. That's because Alan Greenspan's stock market bubble kicked in, and people had the illusion of wealth generation without the need to continue saving.
In 2001 the saving rate hit the zero mark for the first time, and then got even worse! Reason: Greenspan's monetary policy started the biggest real estate bubble of all time, and people were further lured away from the concept of saving. They took on debt like never before. They relied upon rising stock and real estate prices to take care of their future prosperity.
To make matters worse, this absurd idea was massively promoted by the central bankers who never called the bubble for what it was. They even tried to rationalize it instead of issuing appropriate warnings.
The rest is history: The bubble burst and together with it the dreams of millions of people. And the worst financial and economic crisis since the 1930s started to evolve.
Thanks to the Current Crisis, It Seems as if Americans Have Finally Come to Their Senses!
Over the past few months the situation has changed dramatically. The wealth illusion, which was fostered by the Fed-induced dual bubbles, is finally gone.
The Baby Boomer Generation, some 78 million strong, has realized that planning on rising stock and real estate prices to meet their future needs has led to huge losses.
This wealth destruction has unveiled a massive gap in retirement provisions. All of a sudden many Baby Boomers have started to worry about how to finance their old age. They've suddenly realized that consumption and indebtedness are not the way to prosperity. Consequently, they've started to cut back spending and save more.
In fact, shortly after the recession started in late 2007, the personal saving rate surged from zero to 5 percent. A short pullback followed. But then what looks like a new and healthy uptrend developed.
The U.S., world capitol of the "buy now, pay later" attitude, is undergoing a huge shift. Saving is making a real comeback.
This change in attitude is in all likelihood just the beginning of a long-term trend that will be with us for many years to come. In fact, I expect a lasting return to the country's former saving rate of roughly 10 percent.
The Consequences, Both Good and Bad ...
To close the gap between their current assets and their retirement needs, Baby Boomers will have to save more and spend less. Saving is the precondition for a better future. And finally Americans are abandoning the track of more and more indebtedness, which unquestionably leads to decline and poverty.
So long term, a rising saving rate is very positive. It's laying the foundation for future growth and prosperity. In the shorter term though, this trend has rather unpleasant implications, particularly in the area of consumer demand for goods and services.
As I already mentioned, Baby Boomers are now facing retirement and don't have much time left to close the gap between their current assets and their retirement needs. So they will have to cut back their spending, which does not bode well for the economy or the stock market.
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
Thursday, May 14, 2009
Home Foreclosures are Souring
Just out...
Home foreclosures are soaring: RealtyTrac reported that home foreclosure filings skyrocketed 32 percent to a new all-time record high in April, making the March-April period the worst two-month surge in foreclosures ever with a record 682,000 homeowners receiving notices.
And as if that news isn’t disturbing enough, they’re also warning that the greatest surge in foreclosures of this crisis is still ahead.
Conclusion: The housing bust that lit the fuse on this economic crisis is nowhere near ending.
Home foreclosures are soaring: RealtyTrac reported that home foreclosure filings skyrocketed 32 percent to a new all-time record high in April, making the March-April period the worst two-month surge in foreclosures ever with a record 682,000 homeowners receiving notices.
And as if that news isn’t disturbing enough, they’re also warning that the greatest surge in foreclosures of this crisis is still ahead.
Conclusion: The housing bust that lit the fuse on this economic crisis is nowhere near ending.
Thursday, April 30, 2009
Obama: A Major Step in Making Homes Affordable!
Yesterday we saw additional positive steps in making homes more affordable for all homeowners that need assistance. The US Treasury Department has now addressed second mortgages. You may have noticed from previous postings on our blog or newsletters that we believe second mortgages are a key to making this tremendous impact on today’s economy. For over two years, we have focused our attention on this niche market and became a buyer of bulk purchases in this space directly from banks. Everyone can finger point as to who to blame, but at the end of the day we need solutions. Yesterday’s announcement will make it easier for borrowers to modify or refinance their loans, and the owner and servicers are now given more flexibility than ever to work with homeowners.
We do recognize that unfortunately, it is the investor who put money into a growing market that is not getting a single reprieve. There is no assistance to refinance, to modify or to even limit some of the tax implications if debt is forgiven. Hopefully you were hedged and are not being impacted. While we continue to speak out for investors when we can, we will continue to bring you pertinent information like government programs or changes in legislation.
For now, we are happy to see positive steps taken in adjusting mortgages and reducing foreclosures, specifically in the second mortgage world. Please see the announcement below:
U.S. Treasury Department
Office of Public Affairs
FOR IMMEDIATE RELEASE: April 28, 2009
CONTACT: Treasury Public Affairs (202) 622-2960
http://www.financialstability.gov/latest/pr04_28.html
Obama Administration Announces New Details on Making Home Affordable Program Parallel Second Lien Program to Help Homeowners Achieve Greater Affordability Integration of Hope for Homeowners to Help Underwater Borrowers Regain Equity in their Homes
WASHINGTON - The Obama Administration today announced details of new efforts to help bring relief to responsible homeowners under the Making Home Affordable Program, including an effort to achieve greater affordability for homeowners by lowering payments on their second mortgages as well as a set of measures to help underwater borrowers stay in their homes.
"With these latest program details, we're offering even more opportunities for borrowers to make their homes more affordable under the Administration's housing plan," said Treasury Secretary Tim Geithner. "Ensuring that responsible homeowners can afford to stay in their homes is critical to stabilizing the housing market, which is in turn critical to stabilizing our financial system overall. Every step we take forward is done with that imperative in mind."
"Today's announcements will make it easier for borrowers to modify or refinance their loans under FHA's Hope for Homeowners program," said HUD Secretary Shaun Donovan. "We encourage Congress to enact the necessary legislative changes to make the Hope for Homeowners program an integral part of the Making Home Affordable Program."
The Second Lien Program announced today will work in tandem with first lien modifications offered under the Home Affordable Modification Program to deliver a comprehensive affordability solution for struggling borrowers.
Second mortgages can create significant challenges in helping borrowers avoid foreclosure, even when a first lien is modified. Up to 50 percent of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien. Under the Second Lien Program, when a Home Affordable Modification is initiated on a first lien, servicers participating in the Second Lien Program will automatically reduce payments on the associated second lien according to a pre-set protocol. Alternatively, servicers will have the option to extinguish the second lien in return for a lump sum payment under a pre-set formula determined by Treasury, allowing servicers to target principal extinguishment to the borrowers where extinguishment is most appropriate.
Separately, the Administration has also announced steps to incorporate the Federal Housing Administration's (FHA) Hope for Homeowners into Making Home Affordable. Hope for Homeowners requires the holder of the mortgage to accept a payoff below the current market value of the home, allowing the borrower to refinance into a new FHA-guaranteed loan. Refinancing into a new loan below the home's market value takes a borrower from a position of being underwater to having equity in their home. By increasing a homeowner's equity in the home, Hope for Homeowners can produce a better outcome for borrowers who qualify.
Under the changes announced today and, when evaluating borrowers for a Home Affordable Modification, servicers will be required to determine eligibility for a Hope for Homeowners refinancing. Where Hope for Homeowners proves to be viable, the servicer must offer this option to the borrower. To ensure proper alignment of incentives, servicers and lenders will receive pay-for-success payments for Hope for Homeowners refinancing similar to those offered for Home Affordable Modifications. These additional supports are designed to work in tandem and take effect with the improved and expanded program under consideration by Congress. The Administration supports legislation to strengthen Hope for Homeowners so that it can function effectively as an integral part of the Making Home Affordable Program.
Making Home Affordable, a comprehensive plan to stabilize the U.S. housing market, was first announced by the Administration on February 18. The three part program includes aggressive measures to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac; a Home Affordable Refinance Program, which will provide new access to refinancing for up to 4 to 5 million homeowners; and a Home Affordable Modification Program, which will reduce monthly payments on existing first lien mortgages for up to 3 to 4 million at-risk homeowners. Two weeks later, the Administration published detailed guidelines for the Home Affordable Modification Program and authorized servicers to begin modifications under the plan immediately. Twelve servicers, including the five largest, have now signed contracts and begun modifications under the program. Between loans covered by these servicers and loans owned or securitized by Fannie Mae or Freddie Mac, more
than 75 percent of all loans in the country are now covered by the Making Home Affordable Program.
Continuing to bolster its outreach around the program, the Administration also announced today a new effort to engage directly with homeowners via MakingHomeAffordable.gov. Starting today, homeowners will have the ability to submit individual questions through the website to the Administration's housing team. Members of the Treasury and HUD staffs will periodically select commonly asked questions and post responses on MakingHomeAffordable.gov. To submit a question, homeowners can visit www.MakingHomeAffordable.gov/feedback.html. Selected questions from homeowners across the country and responses from the Administration will be available at www.MakingHomeAffordable.gov/asked-and-answered.html.
About PropertyVestors
PropertyVestors is an investment group of CEOs, entrepreneurs and accredited real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio and taking advantage of niche markets.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include private lending options; preconstruction syndication; and bulk purchases of foreclosed properties and mortgage notes. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
Sarah Barry is the founder of PropertyVestors (www.PropertyVestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk.
We do recognize that unfortunately, it is the investor who put money into a growing market that is not getting a single reprieve. There is no assistance to refinance, to modify or to even limit some of the tax implications if debt is forgiven. Hopefully you were hedged and are not being impacted. While we continue to speak out for investors when we can, we will continue to bring you pertinent information like government programs or changes in legislation.
For now, we are happy to see positive steps taken in adjusting mortgages and reducing foreclosures, specifically in the second mortgage world. Please see the announcement below:
U.S. Treasury Department
Office of Public Affairs
FOR IMMEDIATE RELEASE: April 28, 2009
CONTACT: Treasury Public Affairs (202) 622-2960
http://www.financialstability.gov/latest/pr04_28.html
Obama Administration Announces New Details on Making Home Affordable Program Parallel Second Lien Program to Help Homeowners Achieve Greater Affordability Integration of Hope for Homeowners to Help Underwater Borrowers Regain Equity in their Homes
WASHINGTON - The Obama Administration today announced details of new efforts to help bring relief to responsible homeowners under the Making Home Affordable Program, including an effort to achieve greater affordability for homeowners by lowering payments on their second mortgages as well as a set of measures to help underwater borrowers stay in their homes.
"With these latest program details, we're offering even more opportunities for borrowers to make their homes more affordable under the Administration's housing plan," said Treasury Secretary Tim Geithner. "Ensuring that responsible homeowners can afford to stay in their homes is critical to stabilizing the housing market, which is in turn critical to stabilizing our financial system overall. Every step we take forward is done with that imperative in mind."
"Today's announcements will make it easier for borrowers to modify or refinance their loans under FHA's Hope for Homeowners program," said HUD Secretary Shaun Donovan. "We encourage Congress to enact the necessary legislative changes to make the Hope for Homeowners program an integral part of the Making Home Affordable Program."
The Second Lien Program announced today will work in tandem with first lien modifications offered under the Home Affordable Modification Program to deliver a comprehensive affordability solution for struggling borrowers.
Second mortgages can create significant challenges in helping borrowers avoid foreclosure, even when a first lien is modified. Up to 50 percent of at-risk mortgages have second liens, and many properties in foreclosure have more than one lien. Under the Second Lien Program, when a Home Affordable Modification is initiated on a first lien, servicers participating in the Second Lien Program will automatically reduce payments on the associated second lien according to a pre-set protocol. Alternatively, servicers will have the option to extinguish the second lien in return for a lump sum payment under a pre-set formula determined by Treasury, allowing servicers to target principal extinguishment to the borrowers where extinguishment is most appropriate.
Separately, the Administration has also announced steps to incorporate the Federal Housing Administration's (FHA) Hope for Homeowners into Making Home Affordable. Hope for Homeowners requires the holder of the mortgage to accept a payoff below the current market value of the home, allowing the borrower to refinance into a new FHA-guaranteed loan. Refinancing into a new loan below the home's market value takes a borrower from a position of being underwater to having equity in their home. By increasing a homeowner's equity in the home, Hope for Homeowners can produce a better outcome for borrowers who qualify.
Under the changes announced today and, when evaluating borrowers for a Home Affordable Modification, servicers will be required to determine eligibility for a Hope for Homeowners refinancing. Where Hope for Homeowners proves to be viable, the servicer must offer this option to the borrower. To ensure proper alignment of incentives, servicers and lenders will receive pay-for-success payments for Hope for Homeowners refinancing similar to those offered for Home Affordable Modifications. These additional supports are designed to work in tandem and take effect with the improved and expanded program under consideration by Congress. The Administration supports legislation to strengthen Hope for Homeowners so that it can function effectively as an integral part of the Making Home Affordable Program.
Making Home Affordable, a comprehensive plan to stabilize the U.S. housing market, was first announced by the Administration on February 18. The three part program includes aggressive measures to support low mortgage rates by strengthening confidence in Fannie Mae and Freddie Mac; a Home Affordable Refinance Program, which will provide new access to refinancing for up to 4 to 5 million homeowners; and a Home Affordable Modification Program, which will reduce monthly payments on existing first lien mortgages for up to 3 to 4 million at-risk homeowners. Two weeks later, the Administration published detailed guidelines for the Home Affordable Modification Program and authorized servicers to begin modifications under the plan immediately. Twelve servicers, including the five largest, have now signed contracts and begun modifications under the program. Between loans covered by these servicers and loans owned or securitized by Fannie Mae or Freddie Mac, more
than 75 percent of all loans in the country are now covered by the Making Home Affordable Program.
Continuing to bolster its outreach around the program, the Administration also announced today a new effort to engage directly with homeowners via MakingHomeAffordable.gov. Starting today, homeowners will have the ability to submit individual questions through the website to the Administration's housing team. Members of the Treasury and HUD staffs will periodically select commonly asked questions and post responses on MakingHomeAffordable.gov. To submit a question, homeowners can visit www.MakingHomeAffordable.gov/feedback.html. Selected questions from homeowners across the country and responses from the Administration will be available at www.MakingHomeAffordable.gov/asked-and-answered.html.
About PropertyVestors
PropertyVestors is an investment group of CEOs, entrepreneurs and accredited real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio and taking advantage of niche markets.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include private lending options; preconstruction syndication; and bulk purchases of foreclosed properties and mortgage notes. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
Sarah Barry is the founder of PropertyVestors (www.PropertyVestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk.
Friday, April 17, 2009
Economy Booming Again? Seriously?
It's hard to find anyone who's still bearish on the economy or the market these days. Listen to the average pundit on CNBC and this is what you'll hear:
-The credit crisis? It's over! Quit worrying.
-The real estate mess? Fixed! No problem.
-The economy? Rebounding. The worst is behind us.
-The markets? They're headed to infinity and beyond! Better get on board.
I've talked about the credit crisis a few times. And no less an authority than the International Monetary Fund (IMF) believes we've only acknowledged $1.29 trillion of the $4 trillion in total global credit losses to date. That means we're not even a THIRD of the way through the process.
In the real estate arena, we're seeing tentative signs of life in some hard-hit markets. But it's the distressed, "fire sale" stuff that's moving. Inventory levels remain high, and foreclosures show no sign of abating. In fact, foreclosure filings hit a new record high of 341,000 in March — a gain driven by rising unemployment, falling home prices, and the expiration of several, temporary state and industry moratoriums.
And that's just on the RESIDENTIAL front!
The COMMERCIAL real estate business is in full-scale meltdown mode. Prices are plunging, vacancies are soaring, and rents are dropping. Office tenants recently vacated a whopping 24.9 million square feet of space, the most since the 9/11 attacks. And General Growth Properties, the second-biggest mall operator in the U.S., just filed for Chapter 11 bankruptcy protection. The company is buried under $27 billion in debt, and its bankruptcy is the largest EVER seen in the commercial real estate industry.
It's (still) the Economy, Stupid!
But it's the economy that could be the weakest link here. Several companies have come out and said that business isn't getting any worse. Some of the earnings reports I've read talk about how conditions are now simply horrendous, rather than Armageddon-like.
But does that mean things are getting better? Is the economy really ramping up? Is the worst really behind us? I find that hard to believe. Just consider what we learned this week ...
The consumer is still on the ropes! Retail sales plunged 1.1 percent in March. That was a huge swing from the 0.3 percent gain in February, and much worse than forecast.
No matter how you slice and dice the numbers (exclude autos, exclude gas, etc.), you still come to the same conclusion: The consumer is on the ropes and not in the mood to blow his dwindling paycheck at the mall. That's unlikely to change anytime soon, not with the level of continuing jobless claims now running at more than 6 MILLION — the highest in U.S. history.
Factories are sitting idle! Industrial production dropped 1.5 percent in March. That was far worse than the 0.9 percent dip that was expected and the 14th decline in the past 15 months. Capacity utilization — the amount of available space that's actually being used — fell to 69.3 percent. That's the lowest level in the 42 years the government has been keeping track!
Deflation is far from dead! The Federal Reserve has been pumping money into the economy like mad to offset deflation. But so far, it doesn't seem to be working out that well. The Producer Price Index (PPI) dropped 1.2 percent last month, much worse than the forecast for a flat reading.
On a year-over-year basis, wholesale prices are now falling at a 3.5 percent rate. That's the deepest rate of deflation recorded in this country since January 1950! In addition, consumer-level deflation came in at 0.4 percent, the most since 1955.
Garden Variety Recession ... Or Something Else?
Many Wall Street investors are operating under the assumption that this is a garden variety recession. They're saying that the modicum of "less worse" news we've seen is a harbinger of "recovery." They expect consumer spending to resume its normal pace, factories to ramp production back up, and everything to be hunky dory by year end.
But if this is a much deeper economic decline ... one driven by the biggest bout of debt destruction and deleveraging this country has seen since the Great Depression ... that's a different story. In that case, the Fed's reflation efforts will fail. At best, the economy will muddle along. At worst, it will slip even further down the rabbit hole. And stocks will ultimately head lower.
I don't have a perfect crystal ball. But I believe the risk of a Japan-style economic stagnation is much higher than the traditional Wall Street pundit thinks it is. And I believe this recent rally smells more like the bear market variety — very sharp, relatively short-lived, and ultimately, doomed to fail. So I most certainly wouldn't be chasing it.
Until next time…
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
-The credit crisis? It's over! Quit worrying.
-The real estate mess? Fixed! No problem.
-The economy? Rebounding. The worst is behind us.
-The markets? They're headed to infinity and beyond! Better get on board.
I've talked about the credit crisis a few times. And no less an authority than the International Monetary Fund (IMF) believes we've only acknowledged $1.29 trillion of the $4 trillion in total global credit losses to date. That means we're not even a THIRD of the way through the process.
In the real estate arena, we're seeing tentative signs of life in some hard-hit markets. But it's the distressed, "fire sale" stuff that's moving. Inventory levels remain high, and foreclosures show no sign of abating. In fact, foreclosure filings hit a new record high of 341,000 in March — a gain driven by rising unemployment, falling home prices, and the expiration of several, temporary state and industry moratoriums.
And that's just on the RESIDENTIAL front!
The COMMERCIAL real estate business is in full-scale meltdown mode. Prices are plunging, vacancies are soaring, and rents are dropping. Office tenants recently vacated a whopping 24.9 million square feet of space, the most since the 9/11 attacks. And General Growth Properties, the second-biggest mall operator in the U.S., just filed for Chapter 11 bankruptcy protection. The company is buried under $27 billion in debt, and its bankruptcy is the largest EVER seen in the commercial real estate industry.
It's (still) the Economy, Stupid!
But it's the economy that could be the weakest link here. Several companies have come out and said that business isn't getting any worse. Some of the earnings reports I've read talk about how conditions are now simply horrendous, rather than Armageddon-like.
But does that mean things are getting better? Is the economy really ramping up? Is the worst really behind us? I find that hard to believe. Just consider what we learned this week ...
The consumer is still on the ropes! Retail sales plunged 1.1 percent in March. That was a huge swing from the 0.3 percent gain in February, and much worse than forecast.
No matter how you slice and dice the numbers (exclude autos, exclude gas, etc.), you still come to the same conclusion: The consumer is on the ropes and not in the mood to blow his dwindling paycheck at the mall. That's unlikely to change anytime soon, not with the level of continuing jobless claims now running at more than 6 MILLION — the highest in U.S. history.
Factories are sitting idle! Industrial production dropped 1.5 percent in March. That was far worse than the 0.9 percent dip that was expected and the 14th decline in the past 15 months. Capacity utilization — the amount of available space that's actually being used — fell to 69.3 percent. That's the lowest level in the 42 years the government has been keeping track!
Deflation is far from dead! The Federal Reserve has been pumping money into the economy like mad to offset deflation. But so far, it doesn't seem to be working out that well. The Producer Price Index (PPI) dropped 1.2 percent last month, much worse than the forecast for a flat reading.
On a year-over-year basis, wholesale prices are now falling at a 3.5 percent rate. That's the deepest rate of deflation recorded in this country since January 1950! In addition, consumer-level deflation came in at 0.4 percent, the most since 1955.
Garden Variety Recession ... Or Something Else?
Many Wall Street investors are operating under the assumption that this is a garden variety recession. They're saying that the modicum of "less worse" news we've seen is a harbinger of "recovery." They expect consumer spending to resume its normal pace, factories to ramp production back up, and everything to be hunky dory by year end.
But if this is a much deeper economic decline ... one driven by the biggest bout of debt destruction and deleveraging this country has seen since the Great Depression ... that's a different story. In that case, the Fed's reflation efforts will fail. At best, the economy will muddle along. At worst, it will slip even further down the rabbit hole. And stocks will ultimately head lower.
I don't have a perfect crystal ball. But I believe the risk of a Japan-style economic stagnation is much higher than the traditional Wall Street pundit thinks it is. And I believe this recent rally smells more like the bear market variety — very sharp, relatively short-lived, and ultimately, doomed to fail. So I most certainly wouldn't be chasing it.
Until next time…
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
Tuesday, March 31, 2009
All the King’s Horses and All the King’s Men
World history is bursting with real life examples that are metaphorical parallels of the nursery rhyme detailing an egg falling off a wall.
Humpty Dumpty sat on a wall.
Humpty Dumpty had a great fall.
All the king's horses and all the king's men
Couldn't put Humpty together again.
The clear lesson gleaned from this rhyme is that once a fragile organism is shattered, the pieces cannot be glued back together to recreate the original organism. This lesson holds true to all varieties of organisms; eggs, eco-systems, dinosaurs, polar bears, armies, societies, empires, and one especially pertinent in today’s world, economies.
As the world changes, we are forced to change with it. We can try to be conscious of the changes and attempt to work with the forces creating the change, or we can use all of our might to resist the change. There is a lot to be said for the pride and determination it takes to stand up for what you believe in; however, there is a fine line between strong pride and determination and stubbornness. At some point the forces of change may overpower the resistance, and being able to recognize this “tipping point” is the first step in conserving resources and maximizing the opportunities created by the impending changes.
Are there parallels between Humpty Dumpty and the world economies? It is not clear whether anyone has the answer to this question, but what is becoming clearer everyday is the strength and breath of the recession, which is on the brink of being classified as a depression (even though economists have no clear definition of a depression), is growing, and the economic experts of the world cannot reach any consensus on how to slow the growth or ultimately solve the wide variety of economic problems. The most recent developments seem to carry significant impacts, but those impacts do not seem capable of alleviating the intense pressures building on the world economies. It is clear that the forces of change still have the upper hand in the power struggle with our resistance. However, the developments, specifically the new public/private toxic asset plan outlined by the government and the Fed injecting more than $1.25 trillion into the US economy, do seem to have implications for investors even if they do not have the might to wrestle control of the economy.
Treasury Secretary Timothy Geithner recently announced the government’s plan to team with a handpicked group of private funds to purchase $1 trillion worth of toxic assets, much of it mortgage backed securities (MBS) deteriorating from the real estate bust, from struggling banks, the same banks the government has dubbed “too large to fail.” The details of this plan helped to create the rally we are seeing on Wall St. If the plans can successfully transition from paper to practice, the banks will be able to exchange the deteriorating assets for lendable money, loans will be more achievable for small businesses and the general public, fund managers will have new product to sell, pension funds will be able to satisfy their long-term obligations with a new product, and the government can pat themselves on the back for resisting the continued downturn.
However, paper is not practice. The next six to eight weeks should be a honeymoon period seen through rose-colored glasses, but the reality of practice carrying out like the plans on paper seems unlikely. This plan will be in full swing within six to eight weeks, and until the plan can be tested in practice, no bad news will be counted against the bank stocks. Until the plan is in place, we will continue to assume that the outcome on paper will mirror the outcome in practice. This is one opportunity to consider from an investing perspective. The Wall St. rally may continue for a few weeks; the low set on March 6th may endure until we can determine if this plan has any traction. If you are an active and sophisticated investor in the stock market, this could present an opportunity; however, this is one of the most economically volatile periods in history, there are no sure bets.
The Geitner plan has obstacles to its success. Foremost, as presented the plan is attempting to inject $1 trillion into the banking system by purchasing toxic assets, but there are $5 trillion worth of MBS and derivatives outstanding. This crisis is growing larger every day, and the $1 trillion provided in this plan is only a small piece of the funds being committed by the government and the Fed, much of which is coming from the taxpayers or being printed; i.e. “Monopoly” money. We should not expect this public/private plan to have any major impacts, and in reality there is a good chance we could see this plan fall apart before it takes off.
While this plan may seem far-reaching because the government is reaching out to private entities to help motivate the market to act on these toxic assets, the reality is that the Treasury has created the requirements for participating in the program in a way that only a small number of large funds can qualify. The funds need to have raised at least $500 million in the past, command a large sales force, and already own at least $10 billion in distressed loans. Only five to ten companies have such experience, and one or two rise to the top. In effect, the government is choosing the company(s) they want to team with. While this limiting factor seems typical of government actions, the ultimate unhinging is a result of the experience these private companies bring with them.
In the Geitner plan, the private companies are tasked with valuing the deteriorating assets. There are sophisticated mathematical models that are employed to determine the value of assets, the problem is that these assets are unprecedented; there are no historical models to work from so the private firms are tasked with valuing assets that are free-falling. This puts the private fund firms at odds with the banks. The banks are being devalued at a lightning pace, and they want as much as they can get for the toxic assets because every penny will help save them from complete collapse. But the private funds are gambling with any price they set; no one knows where the bottom will be. Clearly the funds want to purchase the assets as low as possible.
These assets have value; many of them are attached to tangible property like real estate. The problem is that the market is falling and no one knows how low the values will go. Underlying every one of those tangible assets are homeowners who could lose their jobs next month and stop paying the mortgage. However, Wall St. has the same underlying principles as Las Vegas, and there are always people willing to gamble. The current market value for these assets is approximately $25 - $35 on $100. However, this value is far too low for banks. The “too big to fail” banks took major gambles (along with everyone else in the U.S. and the world) and overleveraged themselves with these toxic assets. If all the assets were sold for $35 most banks would be forced to take losses large enough to send them into bankruptcy.
Ultimately, there is a strong chance the Geitner plan will not work in practice. If and when appropriate prices are not reached for these assets, the auctions will lock up and the markets will hammer the banks; it is highly likely the current rally will turn bearish in the not-too-distant future. If this theory turns into reality the next step seems to be nationalization. In the end, the best solution could be the path of least resistance, which many times is also the path less traveled.
The second development that has risen to the forefront of the economic mêlée is the recent announcement that the Federal Reserve will increase its purchases of Fannie Mae and Freddie Mac MBS from $500 billion to $1.25 trillion, double its purchases of Fannie, Freddie, and Federal Home Loan Bank bonds to $200 billion, and finally, the Fed will buy as much as $300 billion in longer-term U.S. Treasury securities. (The Federal Reserve, aka the Fed, by name appears to be a governmental agency, but in reality it is a quasi-public banking system, i.e. a government entity with private components, with the power to print money! If you haven’t taken the time to consider what the role of the Fed is in our economy it is worth the research. This announcement by the Fed is somewhat shocking. In poker terms, this could be viewed as “going all in.” These strategies will have far-reaching effects, but whether they are the desired effects is questionable at best.
In effect, the Fed is printing money to turn around and buy debt securities issued by the Treasury. These are strategies usually implemented in third-world countries trying to get off the ground or in countries like Germany prior to World War II that are willing to try anything to stay out of a deep depression. As a reminder of history, the German attempt did not fare well; the strategy created hyperinflation and intensified a dangerous and far-reaching depression. This strategy has the direct effect of severely devaluing the U.S. dollar and crippling U.S. foreign creditors; this is dangerous considering we are a heavy debtor nation asking for tens of billions of dollars per month from foreign sources to fund our massive “bailouts” and deficits. However, there is no persuading the Fed. They have made their decision, and we will have to deal with the consequences of these decisions…perhaps for generations to come.
On the positive side, these strategies continue to create opportunity. Mortgage rates are hovering around all-time lows. Real estate is sinking, and deals can be found for those willing to look. The Fed’s moves are creating a great opportunity to get financing for new projects at amazing rates, or simply refinance into lower rates. As of last week, the average 30-year mortgage rate was at 4.89% and is expected to sink to 4.5% in the near future. As a historical comparison, the lowest annual average mortgage rate seen in the 20th and 21st centuries was 4.7%, set right after World War II. In essence, this is the cheapest mortgage money has ever been! The Feds moves are clearly having a major impact on interest rates, and this creates a great opportunity to leverage the bank’s money for your gain. These rates may help to make real estate projects more attractive, and if you already have a mortgage now may be the time to refinance; a typical rule of thumb is that if you can save 1% on your interest rate it is probably worth refinancing. But keep in mind that refinancing carries with it costs; so you need to stay in the new mortgage long enough to recoup the costs.
Whether Humpty Dumpty can be saved is still a question worth asking, but it’s not clear whether any of the King’s Men have any idea how to answer such a difficult question. However, as they continue to create new strategies to glue the pieces back together, opportunities will arise and fortunes will be made…and lost.
The Opportunity in Real Estate
The key to investing in real estate is to educate yourself on the current market conditions, find quality investment opportunities, and act before the conditions change. PropertyVestors is here to help you accomplish these goals. In this edition of our monthly newsletter, we have highlighted three separate partners/projects that approach investing in the current market from different creative angles. Each of these strategies is designed to capitalize on the current market conditions, and because the strategies use different approaches to investing and utilize various locations, diversification of your investments remains a high priority.
Purchasing Rehabs for Rentals:Blue Moon Capital
A $5,000 down payment is all it takes to transfer ownership while Blue Moon Capital completes the rehab of your rental property for you. BMC will facilitate, manage, complete & pay up-front for property rehab of an average $35,000 Scope of Work. You will get 20% Equity in the property as a head start, based on your lender's final appraisal, along with a 12-month home warranty. Current focus is Pittsburg, Atlanta, Baltimore, Cleveland, Kansas City, and Philadelphia. Property Management companies are ready to fill your rental property. Great cash flow opportunity!
The mortgage crunch has created the perfect investor opportunity....Experts say "BUY NOW" in modest markets such as Cleveland, OH. Foreclosures are high, prices are low and the rental market is strong. Yet, high down payment requirements and tight lending standards still prevent investors from taking advantage of one of the best buying periods seen thus far. Blue Moon Capital offers a $0 down financing, turn-key investment model not seen anywhere else. Learn how Blue Moon Capital is a great source for taking advantage of the BUYERS MARKET with a creative in-house financing model that requires $0 down and only a $5,000 Investment. Please contact PropertyVestors for more information.
Select Private Lending Investments: American Homes
Due to the strict guidelines and "red tape" associated with bank financing these days, many real estate investors with great projects are turning to Private Lenders to obtain financing. The investors are able to obtain the financing quicker and easier, and the Private Lenders are able to have a great return with a secure investment. We have strong relationships with successful and established real estate businesses with strong track records. Our Spotlight for this month's newsletter is on our partner American Homes (AH). In December, a PropertyVestors member funded one of AH's projects, and you will notice a very positive quote from them in the newsletter. We currently have Private Lending opportunities open in Richmond, VA with AH, and the opportunities range from $10k-$1.2m, offer 7-12% annual return backed by real estate, and have solid execution plans and security. Earn 5-8 times CD Rates secured by real estate” (Current 6 month CD is 1.52%)
Preconstruction Syndicate Investments:BridgePoint
A preconstruction syndicate is our most exciting, cutting edge strategy. PropertyVestors works closely with BridgePoint on our "Preconstruction Syndicate" deals as they are the leader in this market space. BridgePoint has created an amazingly creative strategy to capitalize on today's market conditions, with possible returns beginning at 40%. Their strategy includes protective addendums that are key to promoting profits and minimizing risk. Markets that we are currently focused on are Panama and Dominican Republic. Immediate opportunities available.
BridgePoint has developed a proprietary strategy that grants them the unique privilege of providing developers with the means to fulfill their requirements and, in exchange, negotiate terms that transfer much of the market risk from their purchasers to the developer.
Please contact us to learn more about these strategies and upcoming projects at invest@propertyvestors.com.
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include private lending options; preconstruction syndication; and opportunties in emerging markets, coastal regions and waterfront properties. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About the Author
Sarah Barry is the founder of PropertyVestors (www.PropertyVestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk.
Humpty Dumpty sat on a wall.
Humpty Dumpty had a great fall.
All the king's horses and all the king's men
Couldn't put Humpty together again.
The clear lesson gleaned from this rhyme is that once a fragile organism is shattered, the pieces cannot be glued back together to recreate the original organism. This lesson holds true to all varieties of organisms; eggs, eco-systems, dinosaurs, polar bears, armies, societies, empires, and one especially pertinent in today’s world, economies.
As the world changes, we are forced to change with it. We can try to be conscious of the changes and attempt to work with the forces creating the change, or we can use all of our might to resist the change. There is a lot to be said for the pride and determination it takes to stand up for what you believe in; however, there is a fine line between strong pride and determination and stubbornness. At some point the forces of change may overpower the resistance, and being able to recognize this “tipping point” is the first step in conserving resources and maximizing the opportunities created by the impending changes.
Are there parallels between Humpty Dumpty and the world economies? It is not clear whether anyone has the answer to this question, but what is becoming clearer everyday is the strength and breath of the recession, which is on the brink of being classified as a depression (even though economists have no clear definition of a depression), is growing, and the economic experts of the world cannot reach any consensus on how to slow the growth or ultimately solve the wide variety of economic problems. The most recent developments seem to carry significant impacts, but those impacts do not seem capable of alleviating the intense pressures building on the world economies. It is clear that the forces of change still have the upper hand in the power struggle with our resistance. However, the developments, specifically the new public/private toxic asset plan outlined by the government and the Fed injecting more than $1.25 trillion into the US economy, do seem to have implications for investors even if they do not have the might to wrestle control of the economy.
Treasury Secretary Timothy Geithner recently announced the government’s plan to team with a handpicked group of private funds to purchase $1 trillion worth of toxic assets, much of it mortgage backed securities (MBS) deteriorating from the real estate bust, from struggling banks, the same banks the government has dubbed “too large to fail.” The details of this plan helped to create the rally we are seeing on Wall St. If the plans can successfully transition from paper to practice, the banks will be able to exchange the deteriorating assets for lendable money, loans will be more achievable for small businesses and the general public, fund managers will have new product to sell, pension funds will be able to satisfy their long-term obligations with a new product, and the government can pat themselves on the back for resisting the continued downturn.
However, paper is not practice. The next six to eight weeks should be a honeymoon period seen through rose-colored glasses, but the reality of practice carrying out like the plans on paper seems unlikely. This plan will be in full swing within six to eight weeks, and until the plan can be tested in practice, no bad news will be counted against the bank stocks. Until the plan is in place, we will continue to assume that the outcome on paper will mirror the outcome in practice. This is one opportunity to consider from an investing perspective. The Wall St. rally may continue for a few weeks; the low set on March 6th may endure until we can determine if this plan has any traction. If you are an active and sophisticated investor in the stock market, this could present an opportunity; however, this is one of the most economically volatile periods in history, there are no sure bets.
The Geitner plan has obstacles to its success. Foremost, as presented the plan is attempting to inject $1 trillion into the banking system by purchasing toxic assets, but there are $5 trillion worth of MBS and derivatives outstanding. This crisis is growing larger every day, and the $1 trillion provided in this plan is only a small piece of the funds being committed by the government and the Fed, much of which is coming from the taxpayers or being printed; i.e. “Monopoly” money. We should not expect this public/private plan to have any major impacts, and in reality there is a good chance we could see this plan fall apart before it takes off.
While this plan may seem far-reaching because the government is reaching out to private entities to help motivate the market to act on these toxic assets, the reality is that the Treasury has created the requirements for participating in the program in a way that only a small number of large funds can qualify. The funds need to have raised at least $500 million in the past, command a large sales force, and already own at least $10 billion in distressed loans. Only five to ten companies have such experience, and one or two rise to the top. In effect, the government is choosing the company(s) they want to team with. While this limiting factor seems typical of government actions, the ultimate unhinging is a result of the experience these private companies bring with them.
In the Geitner plan, the private companies are tasked with valuing the deteriorating assets. There are sophisticated mathematical models that are employed to determine the value of assets, the problem is that these assets are unprecedented; there are no historical models to work from so the private firms are tasked with valuing assets that are free-falling. This puts the private fund firms at odds with the banks. The banks are being devalued at a lightning pace, and they want as much as they can get for the toxic assets because every penny will help save them from complete collapse. But the private funds are gambling with any price they set; no one knows where the bottom will be. Clearly the funds want to purchase the assets as low as possible.
These assets have value; many of them are attached to tangible property like real estate. The problem is that the market is falling and no one knows how low the values will go. Underlying every one of those tangible assets are homeowners who could lose their jobs next month and stop paying the mortgage. However, Wall St. has the same underlying principles as Las Vegas, and there are always people willing to gamble. The current market value for these assets is approximately $25 - $35 on $100. However, this value is far too low for banks. The “too big to fail” banks took major gambles (along with everyone else in the U.S. and the world) and overleveraged themselves with these toxic assets. If all the assets were sold for $35 most banks would be forced to take losses large enough to send them into bankruptcy.
Ultimately, there is a strong chance the Geitner plan will not work in practice. If and when appropriate prices are not reached for these assets, the auctions will lock up and the markets will hammer the banks; it is highly likely the current rally will turn bearish in the not-too-distant future. If this theory turns into reality the next step seems to be nationalization. In the end, the best solution could be the path of least resistance, which many times is also the path less traveled.
The second development that has risen to the forefront of the economic mêlée is the recent announcement that the Federal Reserve will increase its purchases of Fannie Mae and Freddie Mac MBS from $500 billion to $1.25 trillion, double its purchases of Fannie, Freddie, and Federal Home Loan Bank bonds to $200 billion, and finally, the Fed will buy as much as $300 billion in longer-term U.S. Treasury securities. (The Federal Reserve, aka the Fed, by name appears to be a governmental agency, but in reality it is a quasi-public banking system, i.e. a government entity with private components, with the power to print money! If you haven’t taken the time to consider what the role of the Fed is in our economy it is worth the research. This announcement by the Fed is somewhat shocking. In poker terms, this could be viewed as “going all in.” These strategies will have far-reaching effects, but whether they are the desired effects is questionable at best.
In effect, the Fed is printing money to turn around and buy debt securities issued by the Treasury. These are strategies usually implemented in third-world countries trying to get off the ground or in countries like Germany prior to World War II that are willing to try anything to stay out of a deep depression. As a reminder of history, the German attempt did not fare well; the strategy created hyperinflation and intensified a dangerous and far-reaching depression. This strategy has the direct effect of severely devaluing the U.S. dollar and crippling U.S. foreign creditors; this is dangerous considering we are a heavy debtor nation asking for tens of billions of dollars per month from foreign sources to fund our massive “bailouts” and deficits. However, there is no persuading the Fed. They have made their decision, and we will have to deal with the consequences of these decisions…perhaps for generations to come.
On the positive side, these strategies continue to create opportunity. Mortgage rates are hovering around all-time lows. Real estate is sinking, and deals can be found for those willing to look. The Fed’s moves are creating a great opportunity to get financing for new projects at amazing rates, or simply refinance into lower rates. As of last week, the average 30-year mortgage rate was at 4.89% and is expected to sink to 4.5% in the near future. As a historical comparison, the lowest annual average mortgage rate seen in the 20th and 21st centuries was 4.7%, set right after World War II. In essence, this is the cheapest mortgage money has ever been! The Feds moves are clearly having a major impact on interest rates, and this creates a great opportunity to leverage the bank’s money for your gain. These rates may help to make real estate projects more attractive, and if you already have a mortgage now may be the time to refinance; a typical rule of thumb is that if you can save 1% on your interest rate it is probably worth refinancing. But keep in mind that refinancing carries with it costs; so you need to stay in the new mortgage long enough to recoup the costs.
Whether Humpty Dumpty can be saved is still a question worth asking, but it’s not clear whether any of the King’s Men have any idea how to answer such a difficult question. However, as they continue to create new strategies to glue the pieces back together, opportunities will arise and fortunes will be made…and lost.
The Opportunity in Real Estate
The key to investing in real estate is to educate yourself on the current market conditions, find quality investment opportunities, and act before the conditions change. PropertyVestors is here to help you accomplish these goals. In this edition of our monthly newsletter, we have highlighted three separate partners/projects that approach investing in the current market from different creative angles. Each of these strategies is designed to capitalize on the current market conditions, and because the strategies use different approaches to investing and utilize various locations, diversification of your investments remains a high priority.
Purchasing Rehabs for Rentals:Blue Moon Capital
A $5,000 down payment is all it takes to transfer ownership while Blue Moon Capital completes the rehab of your rental property for you. BMC will facilitate, manage, complete & pay up-front for property rehab of an average $35,000 Scope of Work. You will get 20% Equity in the property as a head start, based on your lender's final appraisal, along with a 12-month home warranty. Current focus is Pittsburg, Atlanta, Baltimore, Cleveland, Kansas City, and Philadelphia. Property Management companies are ready to fill your rental property. Great cash flow opportunity!
The mortgage crunch has created the perfect investor opportunity....Experts say "BUY NOW" in modest markets such as Cleveland, OH. Foreclosures are high, prices are low and the rental market is strong. Yet, high down payment requirements and tight lending standards still prevent investors from taking advantage of one of the best buying periods seen thus far. Blue Moon Capital offers a $0 down financing, turn-key investment model not seen anywhere else. Learn how Blue Moon Capital is a great source for taking advantage of the BUYERS MARKET with a creative in-house financing model that requires $0 down and only a $5,000 Investment. Please contact PropertyVestors for more information.
Select Private Lending Investments: American Homes
Due to the strict guidelines and "red tape" associated with bank financing these days, many real estate investors with great projects are turning to Private Lenders to obtain financing. The investors are able to obtain the financing quicker and easier, and the Private Lenders are able to have a great return with a secure investment. We have strong relationships with successful and established real estate businesses with strong track records. Our Spotlight for this month's newsletter is on our partner American Homes (AH). In December, a PropertyVestors member funded one of AH's projects, and you will notice a very positive quote from them in the newsletter. We currently have Private Lending opportunities open in Richmond, VA with AH, and the opportunities range from $10k-$1.2m, offer 7-12% annual return backed by real estate, and have solid execution plans and security. Earn 5-8 times CD Rates secured by real estate” (Current 6 month CD is 1.52%)
Preconstruction Syndicate Investments:BridgePoint
A preconstruction syndicate is our most exciting, cutting edge strategy. PropertyVestors works closely with BridgePoint on our "Preconstruction Syndicate" deals as they are the leader in this market space. BridgePoint has created an amazingly creative strategy to capitalize on today's market conditions, with possible returns beginning at 40%. Their strategy includes protective addendums that are key to promoting profits and minimizing risk. Markets that we are currently focused on are Panama and Dominican Republic. Immediate opportunities available.
BridgePoint has developed a proprietary strategy that grants them the unique privilege of providing developers with the means to fulfill their requirements and, in exchange, negotiate terms that transfer much of the market risk from their purchasers to the developer.
Please contact us to learn more about these strategies and upcoming projects at invest@propertyvestors.com.
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include private lending options; preconstruction syndication; and opportunties in emerging markets, coastal regions and waterfront properties. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About the Author
Sarah Barry is the founder of PropertyVestors (www.PropertyVestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk.
Monday, March 30, 2009
Alarming News: Bank Losses Spreading
For the first time in history, U.S. banks have suffered large, ominous losses in a giant sector that, until now, they thought was solid: bets on interest rates.
In a moment, I'll explain what this means for your savings and your stocks. But first, here's the alarming news: According to the fourth quarter report just released this past Friday by the Comptroller of the Currency (OCC), commercial banks lost a record $3.4 billion in interest rate derivatives, or more than seven times their worst previous quarterly loss in that category.1
And here's why the losses are so ominous:
Until the third quarter of last year, the banks' losses in derivatives were almost entirely confined to credit default swaps — bets on failing companies and sinking investments.
But credit default swaps are actually a much smaller sector, representing only 7.8 percent of the total derivatives market.
Now, with these new losses in interest rate derivatives, the disease has begun to infect a sector that encompasses a whopping 82 percent of the derivatives market.2
Thus, considering their far larger volume, any threat to interest rate derivatives could be far more serious than anything we've seen so far.
Meanwhile, time bombs continue to explode in the credit default swaps as well, delivering another massive loss of nearly $9 billion in the fourth quarter. And remember: These represent the aggregate total for the entire banking industry, after netting out the results of banks with profitable trading.
Why This Crisis Could Be Nearly as Bad as the Banking Crisis of 1929-31
Yes, I know the standard argument: In 1929, bank regulation and depositor protection was primarily run by state governments. Now, with the FDIC, the OCC, and more direct Federal Reserve intervention, it's far more centralized.
But offsetting that strength are serious weaknesses in the banking system that did not exist in the 1930s:
• In 1929, there were fewer giant banks. They controlled a smaller share of the total market. And they were generally stronger than the thousands of community banks around the country. Today, by contrast, the nation's high-roller megabanks dominate the market.
• In 1929, derivatives were virtually nonexistent. Not today! U.S. banks alone control $200.4 trillion; and it's precisely in this dangerous sector that the megabanks dominate the most.
According to the OCC's Q4 2008 report, America's top five commercial banks control 96 percent of the industry's total derivatives, while the top 25 control 99.78 percent. In other words, for every $100 dollar of derivatives, the big banks have $99.78 ... while the rest of the nation's 7,000-plus banking institutions control a meager 22 cents!3
This is a massively dangerous concentration of risk.
The large banks are exposed to the danger that buyers will vanish, markets will suddenly become illiquid, and they'll be unable to unload their positions without accepting wipe-out losses. Has this ever happened? Unfortunately, yes. In fact, it's the primary reason they lost a record
$3.4 billion in the last three months of 2008.
The large banks are exposed to the danger that, with exploding federal deficits and new fears of inflation, interest rates will suddenly surge, delivering a whole new round of even bigger losses in the months ahead.
Worst of all, the five biggest banks are exposed to breathtaking default risk — the danger that their trading partners could fail to make good on their gambling debts, transforming even the best winning trades into some of the worst losers.
Specifically, at year-end 2008,
-Bank of America's total credit exposure to derivatives was 179 percent of its risk-based capital;
-Citibank's was 278 percent;
-JPMorgan Chase's, 382 percent; and
-HSBC America's, 550 percent.
What's excessive? The banking regulators won't tell us. But as a rule, exposure of more than 25 percent in any one major risk area is too much, in my view.
And if you think these four banks are overexposed, wait till you see the super-high roller that the OCC has just added to its quarterly reports: Goldman Sachs.
According to the OCC, Goldman Sachs' total credit exposure at year-end was 1,056 percent, or over ten times more than its capital.
The folks at Goldman think they're smart, and they are. They say they can handle large risks, and usually they can. But not in a sinking global economy! And not when the exposure reaches such stratospheric extremes!
Major Impact on the Stock Market
In the 1930s, the banking crisis helped drive the economy into depression and the stock market into its worst decline of the century.
The same is happening today. Whether the nation's big banks are bailed out by the federal government or not, the fact remains that they're jacking up credit standards, squeezing off credit lines, and even shutting down major segments of their lending operations.
And regardless of how much lawmakers try to arm-twist banks to lend more, it's rarely happening. With scant exceptions, bank capital has been reduced, sometimes decimated. The risk of lending has gone through the roof. And many of the more prudent borrowers don't even want bank loans to begin with.
Those credit shortages, both acute and chronic, have a big impact on the economy and the stock market. Moreover, unlike the 1930s, banks themselves are publicly traded companies whose shares make up a substantial portion of the S&P 500.
The big lesson to be learned: Don't pooh-pooh comparisons between today's bear market and the deep bear market of 1929-32. From its peak in 1929, the Dow Jones Industrials Average fell 89 percent. Compared to the Dow's peak in 2007, that would be tantamount to a plunge of more than 12,600 points — to a low of approximately 1500, or an additional 81 percent decline from the Friday's 7776.
Even a decline of half that magnitude would still leave the Dow well below the 5000 level, which remains our current target. Does this preclude sharp rallies? Absolutely not! From its recent March 6 bottom to last week's peak, the Dow has already jumped a resounding 21 percent in just 20 short days. And the rally may still not be over.
But this is nothing unusual. In the 1929-32 period, the Dow enjoyed even sharper rallies, and those rallies did nothing to end the great bear market. My father, who made a fortune shorting stocks in that period, explains it this way:
"In the 1930s, at each step down the slippery slope of the market's decline, Washington would periodically announce some new initiative to turn things around.
"President Hoover would give a new pep talk promising ‘prosperity around the corner.' And often, the Dow staged dramatic rallies — up 30 percent on the first round, 48 percent on the second, 23 percent on the third, and more.
"Each time, I sought to use the rallies as selling opportunities. I persuaded more of my clients to get rid of their stocks and pile up cash. I even told them to take their money out of shaky banks."
Your approach today should be similar.
Specifically,
Step 1. Keep as much as 90 percent of your money SAFE, as follows:
For your banking needs, seek to use only institutions with a Financial Strength Rating of B+ or better. For a list, click here. Then, in the index, scroll down to item 13, "Strongest Banks and Thrifts in the U.S."
Make sure your deposits remain comfortably under the old FDIC insurance coverage limits of $100,000. The new $250,000 per account limit is temporary and, in my view, not something to rely on long term.
Move the bulk of your money to Treasury bills or equivalent. You can buy them (a) directly from the U.S. Treasury Department by opening an account at TreasuryDirect, (b) through your broker, or (c) via a Treasury-only money market fund. For further instructions, click here and review sections 1 through 3 — "How to Buy Treasury Bills or Equivalent," "How to Use Your Treasury-Only Money Fund as a Bank," and "How to Set Up a Single, Safe Account for Nearly All Your Savings and Checking."
Important: You may have seen some commentary from experts that "Treasuries are not safe." But when you review their comments more carefully, you'll probably see they're not referring to Treasury bills, which have virtually zero price risk. They're talking strictly about Treasury notes or bonds, which can — and probably will — suffer serious declines in their market value.
Step 2. If you missed the opportunity to greatly reduce your exposure to the stock market in 2007 or 2008, you now have another chance. And the more the market rises from here, the more you should sell.
Step 3. If you are still exposed to stock market declines, seriously consider inverse ETFs, ideal for helping you hedge against that risk. (For more background information, see my 2007 report, How to Protect Your Stock Portfolio From the Spreading Credit Crunch.)
Step 4. If you have funds you can afford to risk, seriously consider two major profit opportunities in the months ahead:
To profit handsomely from the market's next decline. The best time to start: When Wall Street pundits begin declaring "the bear is dead." They'll be wrong. But their enthusiasm can be one of the telltale signs that the latest rally is probably ending.
To profit even more when the market hits rock bottom and you can buy some of the nation's best companies for pennies on the dollar. The ideal time to buy: When Wall Street is convinced the world is virtually "coming to an end." They will be wrong, again. But that kind of extreme pessimism could be one of your signals that a real recovery is about to begin.
1 For the banks' $3.42 billion loss in interest rate derivatives, see OCC's Quarterly Report on Bank Trading and Derivatives Activities Fourth Quarter 2008, table at the bottom of pdf page 17, "Cash & Derivative Revenue," line 1. As you can see, that was 7.2 times larger than the previous record — the fourth quarter of 2004, when the nation's banks lost $472 million in interest rate derivatives.
2 See OCC table at the bottom of pdf page 11, "Derivative Contracts by Type." In it, the OCC reports total U.S. bank-held derivatives of $200,382 billion at year-end 2008. Among these, the single largest category is interest rate derivatives, representing $164,404 billion, or 82 percent of the total. In contrast, credit derivatives are only $15,897 billion, or 7.93 percent of the total. Within the credit derivative category, the OCC reports (page 1, fourth bullet) that nearly all — 98 percent — are credit default swaps, which have proven to be the most toxic and damaging category of derivatives so far. But they represent only 7.77 percent of all derivatives (7.93 percent x 98 percent).
3 OCC. In Table 1, pdf page 22, "Notional Amount of Derivatives Contracts."
4 OCC, table at bottom of pdf page 13.
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
In a moment, I'll explain what this means for your savings and your stocks. But first, here's the alarming news: According to the fourth quarter report just released this past Friday by the Comptroller of the Currency (OCC), commercial banks lost a record $3.4 billion in interest rate derivatives, or more than seven times their worst previous quarterly loss in that category.1
And here's why the losses are so ominous:
Until the third quarter of last year, the banks' losses in derivatives were almost entirely confined to credit default swaps — bets on failing companies and sinking investments.
But credit default swaps are actually a much smaller sector, representing only 7.8 percent of the total derivatives market.
Now, with these new losses in interest rate derivatives, the disease has begun to infect a sector that encompasses a whopping 82 percent of the derivatives market.2
Thus, considering their far larger volume, any threat to interest rate derivatives could be far more serious than anything we've seen so far.
Meanwhile, time bombs continue to explode in the credit default swaps as well, delivering another massive loss of nearly $9 billion in the fourth quarter. And remember: These represent the aggregate total for the entire banking industry, after netting out the results of banks with profitable trading.
Why This Crisis Could Be Nearly as Bad as the Banking Crisis of 1929-31
Yes, I know the standard argument: In 1929, bank regulation and depositor protection was primarily run by state governments. Now, with the FDIC, the OCC, and more direct Federal Reserve intervention, it's far more centralized.
But offsetting that strength are serious weaknesses in the banking system that did not exist in the 1930s:
• In 1929, there were fewer giant banks. They controlled a smaller share of the total market. And they were generally stronger than the thousands of community banks around the country. Today, by contrast, the nation's high-roller megabanks dominate the market.
• In 1929, derivatives were virtually nonexistent. Not today! U.S. banks alone control $200.4 trillion; and it's precisely in this dangerous sector that the megabanks dominate the most.
According to the OCC's Q4 2008 report, America's top five commercial banks control 96 percent of the industry's total derivatives, while the top 25 control 99.78 percent. In other words, for every $100 dollar of derivatives, the big banks have $99.78 ... while the rest of the nation's 7,000-plus banking institutions control a meager 22 cents!3
This is a massively dangerous concentration of risk.
The large banks are exposed to the danger that buyers will vanish, markets will suddenly become illiquid, and they'll be unable to unload their positions without accepting wipe-out losses. Has this ever happened? Unfortunately, yes. In fact, it's the primary reason they lost a record
$3.4 billion in the last three months of 2008.
The large banks are exposed to the danger that, with exploding federal deficits and new fears of inflation, interest rates will suddenly surge, delivering a whole new round of even bigger losses in the months ahead.
Worst of all, the five biggest banks are exposed to breathtaking default risk — the danger that their trading partners could fail to make good on their gambling debts, transforming even the best winning trades into some of the worst losers.
Specifically, at year-end 2008,
-Bank of America's total credit exposure to derivatives was 179 percent of its risk-based capital;
-Citibank's was 278 percent;
-JPMorgan Chase's, 382 percent; and
-HSBC America's, 550 percent.
What's excessive? The banking regulators won't tell us. But as a rule, exposure of more than 25 percent in any one major risk area is too much, in my view.
And if you think these four banks are overexposed, wait till you see the super-high roller that the OCC has just added to its quarterly reports: Goldman Sachs.
According to the OCC, Goldman Sachs' total credit exposure at year-end was 1,056 percent, or over ten times more than its capital.
The folks at Goldman think they're smart, and they are. They say they can handle large risks, and usually they can. But not in a sinking global economy! And not when the exposure reaches such stratospheric extremes!
Major Impact on the Stock Market
In the 1930s, the banking crisis helped drive the economy into depression and the stock market into its worst decline of the century.
The same is happening today. Whether the nation's big banks are bailed out by the federal government or not, the fact remains that they're jacking up credit standards, squeezing off credit lines, and even shutting down major segments of their lending operations.
And regardless of how much lawmakers try to arm-twist banks to lend more, it's rarely happening. With scant exceptions, bank capital has been reduced, sometimes decimated. The risk of lending has gone through the roof. And many of the more prudent borrowers don't even want bank loans to begin with.
Those credit shortages, both acute and chronic, have a big impact on the economy and the stock market. Moreover, unlike the 1930s, banks themselves are publicly traded companies whose shares make up a substantial portion of the S&P 500.
The big lesson to be learned: Don't pooh-pooh comparisons between today's bear market and the deep bear market of 1929-32. From its peak in 1929, the Dow Jones Industrials Average fell 89 percent. Compared to the Dow's peak in 2007, that would be tantamount to a plunge of more than 12,600 points — to a low of approximately 1500, or an additional 81 percent decline from the Friday's 7776.
Even a decline of half that magnitude would still leave the Dow well below the 5000 level, which remains our current target. Does this preclude sharp rallies? Absolutely not! From its recent March 6 bottom to last week's peak, the Dow has already jumped a resounding 21 percent in just 20 short days. And the rally may still not be over.
But this is nothing unusual. In the 1929-32 period, the Dow enjoyed even sharper rallies, and those rallies did nothing to end the great bear market. My father, who made a fortune shorting stocks in that period, explains it this way:
"In the 1930s, at each step down the slippery slope of the market's decline, Washington would periodically announce some new initiative to turn things around.
"President Hoover would give a new pep talk promising ‘prosperity around the corner.' And often, the Dow staged dramatic rallies — up 30 percent on the first round, 48 percent on the second, 23 percent on the third, and more.
"Each time, I sought to use the rallies as selling opportunities. I persuaded more of my clients to get rid of their stocks and pile up cash. I even told them to take their money out of shaky banks."
Your approach today should be similar.
Specifically,
Step 1. Keep as much as 90 percent of your money SAFE, as follows:
For your banking needs, seek to use only institutions with a Financial Strength Rating of B+ or better. For a list, click here. Then, in the index, scroll down to item 13, "Strongest Banks and Thrifts in the U.S."
Make sure your deposits remain comfortably under the old FDIC insurance coverage limits of $100,000. The new $250,000 per account limit is temporary and, in my view, not something to rely on long term.
Move the bulk of your money to Treasury bills or equivalent. You can buy them (a) directly from the U.S. Treasury Department by opening an account at TreasuryDirect, (b) through your broker, or (c) via a Treasury-only money market fund. For further instructions, click here and review sections 1 through 3 — "How to Buy Treasury Bills or Equivalent," "How to Use Your Treasury-Only Money Fund as a Bank," and "How to Set Up a Single, Safe Account for Nearly All Your Savings and Checking."
Important: You may have seen some commentary from experts that "Treasuries are not safe." But when you review their comments more carefully, you'll probably see they're not referring to Treasury bills, which have virtually zero price risk. They're talking strictly about Treasury notes or bonds, which can — and probably will — suffer serious declines in their market value.
Step 2. If you missed the opportunity to greatly reduce your exposure to the stock market in 2007 or 2008, you now have another chance. And the more the market rises from here, the more you should sell.
Step 3. If you are still exposed to stock market declines, seriously consider inverse ETFs, ideal for helping you hedge against that risk. (For more background information, see my 2007 report, How to Protect Your Stock Portfolio From the Spreading Credit Crunch.)
Step 4. If you have funds you can afford to risk, seriously consider two major profit opportunities in the months ahead:
To profit handsomely from the market's next decline. The best time to start: When Wall Street pundits begin declaring "the bear is dead." They'll be wrong. But their enthusiasm can be one of the telltale signs that the latest rally is probably ending.
To profit even more when the market hits rock bottom and you can buy some of the nation's best companies for pennies on the dollar. The ideal time to buy: When Wall Street is convinced the world is virtually "coming to an end." They will be wrong, again. But that kind of extreme pessimism could be one of your signals that a real recovery is about to begin.
1 For the banks' $3.42 billion loss in interest rate derivatives, see OCC's Quarterly Report on Bank Trading and Derivatives Activities Fourth Quarter 2008, table at the bottom of pdf page 17, "Cash & Derivative Revenue," line 1. As you can see, that was 7.2 times larger than the previous record — the fourth quarter of 2004, when the nation's banks lost $472 million in interest rate derivatives.
2 See OCC table at the bottom of pdf page 11, "Derivative Contracts by Type." In it, the OCC reports total U.S. bank-held derivatives of $200,382 billion at year-end 2008. Among these, the single largest category is interest rate derivatives, representing $164,404 billion, or 82 percent of the total. In contrast, credit derivatives are only $15,897 billion, or 7.93 percent of the total. Within the credit derivative category, the OCC reports (page 1, fourth bullet) that nearly all — 98 percent — are credit default swaps, which have proven to be the most toxic and damaging category of derivatives so far. But they represent only 7.77 percent of all derivatives (7.93 percent x 98 percent).
3 OCC. In Table 1, pdf page 22, "Notional Amount of Derivatives Contracts."
4 OCC, table at bottom of pdf page 13.
This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
Saturday, February 28, 2009
Shifting Tides
Sir Isaac Newton’s third law of motion: For every action, there is an equal and opposite reaction.
This law, discerned by Newton in 1687, applies to the laws of physics, but it could just as easily apply to every aspect of life, including the current economic crisis sweeping the Globe. Eastern philosophy refers to this idea as Ying and Yang. Everything is a product of two fundamentally opposite forces: cold, hot; light, dark; feminine, masculine; bull market, bear market.
The simplicity of this concept is somewhat overwhelming. Do we really need Newton or ancient philosophers to tell us that everything has an opposite? Intuitively, this is an easy concept to understand; of course everything has an opposite and overtime a balance is reached between the opposite poles of any situation. If this is an intuitively basic concept, how do we succumb to such drastic extremes? How do we lose ourselves in the euphoria of the highs or the doldrums of the lows? We listen to our minds rather than our intuition; we follow the herd rather than thinking for ourselves.
The economic bubble, built from the tech boom of the 1990’s into the housing boom of the 2000’s, is a clear example of being caught in a euphoric state and misunderstanding the intuitively simple concept of balance. The amazing growth the World experienced was unsustainable, and the economic crisis we are experiencing is the market exacting an equal and opposite reaction to that unsustainable growth. The crisis is clear, and it is spreading at an unprecedented pace. 2008 was one of the worst years on record; any number of gruesome statistics can be used to support this claim, but I’ll choose one near and dear to most gainfully employed Americans: on average 401K’s fell 27% in 2008! Retirement may have to wait; especially for Baby Boomers. To add insult to injury, 2009 is on pace to be much worse: jobless rates have climbed to 7.6%, 600K jobs were lost in January alone, it is estimated that the crisis has caused more than $13 TRILLION of lost assets and climbing!
It is difficult to speak about this crisis in terms that do not seem shocking, but just as the Eastern philosophers would point out, EVERY aspect of life has Ying and Yang. On a macro level we are experiencing the Ying to the Bull Market’s Yang, but on an individual, micro level, there is always positivity to be found. “For every buyer, there’s a seller;” one investor’s panic can be another’s profit opportunity. The “market” is not closed for business; we just need to be exceptionally careful with our investment decisions.
The economic crisis is in its initial growth phase, and the growing pains are sure to be with us for an extended time, but with great uncertainty and change comes great opportunity. The daily news has become a soap opera for investors, with as much rumor and in-fighting as the worst cliques in high school. The silver lining to this constant change is that patterns are forming and agendas are beginning to take hold. No question these patterns and agendas will continue to develop, but as patterns form and grow, investment opportunities will grow along with them.
The Obama administration is only one month old and the markets are already showing an increasing lack of confidence in the administration’s plans, but is that lack of confidence well founded? What is the focus of the administration, and how will this focus create investment opportunities?
Considering the severity of this crisis, any lack of confidence is well founded, however, the Obama administration is beginning to show signs that their plan will deviate from the course laid by the preceding administration. While this deviation may not be a cure-all, the current strategies are gathering increased disdain from citizens and demonstrating no discernable improvements; so, a new course is a welcomed change, and with a new course comes new opportunity. It may not be a “change we can believe in,” but it is a change and the patterns that develop will create investment opportunities.
Fed’s focus shifting from Wall St. to Main St.?
Treasury Secretary Tim Geithner’s plan to end the financial crisis was vague and lacking key details, and Wall St. responded accordingly with a 382 point drop in the Dow Jones Industrial Average which began while Geithner was still making his speech. While the lack of clarity of the plan raised questions on Wall St., it is understandable when we consider that the Geithner Plan began as a back-up plan that was moved to the forefront when it became clear that other plans for stability fell drastically short. In addition, as the Geithner Plan begins to unfold it is clear that the Obama administration is up against major political obstacles.
Originally, the discussion to come up with a plan to stabilize the financial system focused on two ideas: 1. Creating a “bad bank” to buy distressed financial assets to get them off the banks’ balance sheets, and 2. The government would extend guarantees to banks against catastrophic losses; similar to guarantees already made to Bank of America and Citigroup. However, these two ideas had major drawbacks that eventually led the Treasury Department to conclude that they were not feasible solutions.
•The tremendous expense would force the administration to ask Congress for additional money to put towards banks/Wall St., and it is clear that public sentiment (anger really) will not support any further “bail outs” to Wall St. Without at least lukewarm public approval it would be very difficult to get Congress’ approval.
•The government would be left in a weak position with the banks. Banks would have a position of control over the government if it was clear the government felt the banks were “too big to fail.” Leaving the banks with control would create further public and Congressional resistance.
•The government would be forced to determine the value of the banks’ assets, most of which are not even trading now.
The Geithner plan attempts to find solutions to these drawbacks. The plan shifts the Fed’s focus from saving the troubled banks at all costs to exposing the reality of the situation, and exposing reality is not always politically popular. The Geithner plan addresses the political impasse of offering further “bail outs” to banks. Instead of offering additional funds to banks based on information the banks provide, the Fed is now sending government regulators to apply a “stress test” to 20 of the country’s largest banks. These “stress tests” are likely to expose some brand name banks as insolvent. The general population expects this insolvency to some degree, but up to this point the potential for insolvency has been ignored, or at least pushed “under the rug” while offering more and more funds to the banks. Bringing the insolvency to light is key. We need to understand the true implications of this crisis. We need to know what we are up against in order to create a realistic plan. The hope is that when the true seriousness of the situation is revealed, it will be easier to create political support to enact drastic measures.
In addition to forcing the banks’ hands, Geithner’s plan shifts the balance of power in favor of the government. The current plan has allowed banks to hoard massive amounts of money in the hopes that eventually their assets would regain their value; in the mean time the banks are using their hoards of cash to slowly write off their assets rather than selling them off. The “stress tests” will expose the balance sheets for what they are.
A third step in deviating from the current plan is to allow the government to guarantee private investors from losses when they buy the troubled assets from banks. Private investors are sitting on the sidelines because no one knows how much the troubled assets are worth, and the banks are not pricing them attractively because they are sitting on government money trying to buy time. Geithner has proposed that the government buy the downside risk in these assets. This converts the high degree of uncertainty from a liability to an asset. A private investor can feel confident that if they invest 40 cents on the dollar they won’t lose that 40 cents and if the asset is worth more they could find a profit. Uncertainty and volatility adjust from a negative to a positive. This approach does mean the government (i.e. the taxpayer) could lose money, but it could also mean that if the market improves or the regulators are great at setting the guarantee prices, the taxpayer could actually profit. Either way, it’s a much more creative method of spending the “bail out” money currently flowing to banks.
If and when major banks are declared insolvent, the government will be forced to invoke the dreaded “N” word…Nationalization. At this point Nationalization is a feared term, but it is becoming clear that it is inevitable to some degree. Even free market advocates like former Fed Chief Alan Greenspan are beginning to discuss the inevitability. However, the Obama administration cannot discuss this step yet. From a political stand point, the only way Nationalization can be discussed is once there is clear evidence that it is the only option. The “stress tests” will create this evidence. Until that evidence is found the Geithner plan will continue to lack key details. Announcing plans to Nationalize would send Wall St. into a downward spiral greater than we are already experiencing.
If the government is shifting their focus away from artificially boosting up the banks, where is their focus turning? Obama’s recent speech in Arizona outlining a plan to reduce foreclosures shows a strong step towards supporting Main St. rather than Wall St. The Obama mortgage plan is designed to encourage a procedure that has been taking place through the financial crisis, but has yet to make a large impact; loan modifications. The Obama plan offers subsidies and payments to loan servicers, mortgage investors and borrowers encouraging all parties to take part in loan modifications to create affordable payment plans. The idea is to encourage more servicers and investors to allow modifications, rather than move straight to foreclosure out of fear home prices will continue to drop.
In addition to loan modifications, the Obama mortgage plan permits Fannie and Freddie to refinance mortgages they already hold up to limits of 105% of loan to value rather than the current limit of 80% loan to value. Lastly, the plan is pushing legislative efforts to allow bankruptcy judges to cram down mortgage balances. The goal is to allow judges to treat the portion of a mortgage exceeding the current value of a home as unsecured debt, thus allowing the judge to reduce the unsecured debt.
These are significant changes, but much development is needed to increase the plan’s impact. First, the modification plan only applies to owner occupied homes; this leaves a large population of second homes and investors without assistance. It is estimated by the National Association of Realtors that 40% of existing homes sold during the peak of the bubble, 2005, were purchased as second homes or investments. While helping these individuals isn’t politically popular, it is an absolute imperative if the intended purpose of the plan is to at stability to the real estate market. In addition, increasing the limits on refinances, while generous, will not impact many homeowners whose loan to value ratios are hovering as high 150%. Lastly, the plan does not address the main issue in the housing crisis; houses are greatly overvalued. In order for a mortgage plan to have any traction, loan principals need to be reduced. The general population is not willing to commit their dwindling cash flow to homes worth far less than the loans attached to them. However, principal reductions are exceptionally unpopular with lending institutions…perhaps another political chasm that may be crossed once the “stress tests” indicate the true nature of the banking crisis.
The Obama mortgage plan has clear drawbacks, but the shift is being made towards supporting Main St. The plan will help some borrowers and some lenders avoid some foreclosures, but it’s not a cure-all. Significant improvements to the plan are needed to create a larger impact, but a pattern supporting individual tax payers rather than large banks is a major deviation from the current plan, and this deviation has the potential to have large implications to personal lives and investments. The Obama plan could help you if you are a borrower at risk of defaulting on your loan or if you are already heading towards foreclosure. As the crisis and the plans to stabilize the crisis continue to develop, investment opportunities will continue to materialize. It is the task of every investor to make only well informed decisions, and understand that every investment carries inherent risks, especially in such a volatile investing climate.
The Opportunity in Real Estate
The key to investing in real estate is to educate yourself on the current market conditions, find quality investment opportunities, and act before the conditions change. PropertyVestors is here to help you accomplish these goals. In this edition of our monthly newsletter, we have highlighted three separate partners/projects that approach investing in the current market from different creative angles. Each of these strategies is designed to capitalize on the current market conditions, and because the strategies use different approaches to investing and utilize various locations, diversification of your investments remains a high priority. For institutions that are looking for additional strategies, please visit our asset management company website at www.PhoenixGAC.com.
Purchasing Rehabs for Rentals:
Blue Moon Capital
A $5,000 down payment is all it takes to transfer ownership while Blue Moon Capital completes the rehab of your rental property for you. BMC will facilitate, manage, complete & pay up-front for property rehab of an average $35,000 Scope of Work. You will get 20% Equity in the property as a head start, based on your lender's final appraisal, along with a 12-month home warranty. Current focus is Pittsburg, Atlanta, Baltimore, Cleveland, Kansas City, and Philadelphia. Property Management companies are ready to fill your rental property. Great cash flow opportunity!
The mortgage crunch has created the perfect investor opportunity....Experts say "BUY NOW" in modest markets such as Cleveland, OH. Foreclosures are high, prices are low and the rental market is strong. Yet, high down payment requirements and tight lending standards still prevent investors from taking advantage of one of the best buying periods seen thus far. Blue Moon Capital offers a $0 down financing, turn-key investment model not seen anywhere else. Learn how Blue Moon Capital is a great source for taking advantage of the BUYERS MARKET with a creative in-house financing model that requires $0 down and only a $5,000 Investment. Please contact PropertyVestors for more information.
Select Private Lending Investments:
American Homes
Due to the strict guidelines and "red tape" associated with bank financing these days, many real estate investors with great projects are turning to Private Lenders to obtain financing. The investors are able to obtain the financing quicker and easier, and the Private Lenders are able to have a great return with a secure investment. We have strong relationships with successful and established real estate businesses with strong track records. Our Spotlight for this month's newsletter is on our partner American Homes (AH). In December, a PropertyVestors member funded one of AH's projects, and you will notice a very positive quote from them in the newsletter. We currently have Private Lending opportunities open in Richmond, VA with AH, and the opportunities range from $15-$45k, offer 12% annual return, and have solid execution plans and security. Get more return than CDs, Bonds and Mutual Funds!
Preconstruction Syndicate Investments:
BridgePoint
A preconstruction syndicate is our most exciting, cutting edge strategy. PropertyVestors works closely with BridgePoint on our "Preconstruction Syndicate" deals as they are the leader in this market space. BridgePoint has created an amazingly creative strategy to capitalize on today's market conditions, with possible returns beginning at 40%. Their strategy includes protective addendums that are key to promoting profits and minimizing risk. Markets that we are currently focused on are Panama and Dominican Republic. Immediate opportunities available.
BridgePoint has developed a proprietary strategy that grants them the unique privilege of providing developers with the means to fulfill their requirements and, in exchange, negotiate terms that transfer much of the market risk from their purchasers to the developer.
Please contact us to learn more about these strategies and upcoming projects at invest@propertyvestors.com.
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative, private lending options; moderate with preconstruction syndication; and aggressive with partner deals in emerging markets, coastal regions and waterfront properties. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About the Author
Sarah Barry is the founder of PropertyVestors (www.PropertyVestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk.
This law, discerned by Newton in 1687, applies to the laws of physics, but it could just as easily apply to every aspect of life, including the current economic crisis sweeping the Globe. Eastern philosophy refers to this idea as Ying and Yang. Everything is a product of two fundamentally opposite forces: cold, hot; light, dark; feminine, masculine; bull market, bear market.
The simplicity of this concept is somewhat overwhelming. Do we really need Newton or ancient philosophers to tell us that everything has an opposite? Intuitively, this is an easy concept to understand; of course everything has an opposite and overtime a balance is reached between the opposite poles of any situation. If this is an intuitively basic concept, how do we succumb to such drastic extremes? How do we lose ourselves in the euphoria of the highs or the doldrums of the lows? We listen to our minds rather than our intuition; we follow the herd rather than thinking for ourselves.
The economic bubble, built from the tech boom of the 1990’s into the housing boom of the 2000’s, is a clear example of being caught in a euphoric state and misunderstanding the intuitively simple concept of balance. The amazing growth the World experienced was unsustainable, and the economic crisis we are experiencing is the market exacting an equal and opposite reaction to that unsustainable growth. The crisis is clear, and it is spreading at an unprecedented pace. 2008 was one of the worst years on record; any number of gruesome statistics can be used to support this claim, but I’ll choose one near and dear to most gainfully employed Americans: on average 401K’s fell 27% in 2008! Retirement may have to wait; especially for Baby Boomers. To add insult to injury, 2009 is on pace to be much worse: jobless rates have climbed to 7.6%, 600K jobs were lost in January alone, it is estimated that the crisis has caused more than $13 TRILLION of lost assets and climbing!
It is difficult to speak about this crisis in terms that do not seem shocking, but just as the Eastern philosophers would point out, EVERY aspect of life has Ying and Yang. On a macro level we are experiencing the Ying to the Bull Market’s Yang, but on an individual, micro level, there is always positivity to be found. “For every buyer, there’s a seller;” one investor’s panic can be another’s profit opportunity. The “market” is not closed for business; we just need to be exceptionally careful with our investment decisions.
The economic crisis is in its initial growth phase, and the growing pains are sure to be with us for an extended time, but with great uncertainty and change comes great opportunity. The daily news has become a soap opera for investors, with as much rumor and in-fighting as the worst cliques in high school. The silver lining to this constant change is that patterns are forming and agendas are beginning to take hold. No question these patterns and agendas will continue to develop, but as patterns form and grow, investment opportunities will grow along with them.
The Obama administration is only one month old and the markets are already showing an increasing lack of confidence in the administration’s plans, but is that lack of confidence well founded? What is the focus of the administration, and how will this focus create investment opportunities?
Considering the severity of this crisis, any lack of confidence is well founded, however, the Obama administration is beginning to show signs that their plan will deviate from the course laid by the preceding administration. While this deviation may not be a cure-all, the current strategies are gathering increased disdain from citizens and demonstrating no discernable improvements; so, a new course is a welcomed change, and with a new course comes new opportunity. It may not be a “change we can believe in,” but it is a change and the patterns that develop will create investment opportunities.
Fed’s focus shifting from Wall St. to Main St.?
Treasury Secretary Tim Geithner’s plan to end the financial crisis was vague and lacking key details, and Wall St. responded accordingly with a 382 point drop in the Dow Jones Industrial Average which began while Geithner was still making his speech. While the lack of clarity of the plan raised questions on Wall St., it is understandable when we consider that the Geithner Plan began as a back-up plan that was moved to the forefront when it became clear that other plans for stability fell drastically short. In addition, as the Geithner Plan begins to unfold it is clear that the Obama administration is up against major political obstacles.
Originally, the discussion to come up with a plan to stabilize the financial system focused on two ideas: 1. Creating a “bad bank” to buy distressed financial assets to get them off the banks’ balance sheets, and 2. The government would extend guarantees to banks against catastrophic losses; similar to guarantees already made to Bank of America and Citigroup. However, these two ideas had major drawbacks that eventually led the Treasury Department to conclude that they were not feasible solutions.
•The tremendous expense would force the administration to ask Congress for additional money to put towards banks/Wall St., and it is clear that public sentiment (anger really) will not support any further “bail outs” to Wall St. Without at least lukewarm public approval it would be very difficult to get Congress’ approval.
•The government would be left in a weak position with the banks. Banks would have a position of control over the government if it was clear the government felt the banks were “too big to fail.” Leaving the banks with control would create further public and Congressional resistance.
•The government would be forced to determine the value of the banks’ assets, most of which are not even trading now.
The Geithner plan attempts to find solutions to these drawbacks. The plan shifts the Fed’s focus from saving the troubled banks at all costs to exposing the reality of the situation, and exposing reality is not always politically popular. The Geithner plan addresses the political impasse of offering further “bail outs” to banks. Instead of offering additional funds to banks based on information the banks provide, the Fed is now sending government regulators to apply a “stress test” to 20 of the country’s largest banks. These “stress tests” are likely to expose some brand name banks as insolvent. The general population expects this insolvency to some degree, but up to this point the potential for insolvency has been ignored, or at least pushed “under the rug” while offering more and more funds to the banks. Bringing the insolvency to light is key. We need to understand the true implications of this crisis. We need to know what we are up against in order to create a realistic plan. The hope is that when the true seriousness of the situation is revealed, it will be easier to create political support to enact drastic measures.
In addition to forcing the banks’ hands, Geithner’s plan shifts the balance of power in favor of the government. The current plan has allowed banks to hoard massive amounts of money in the hopes that eventually their assets would regain their value; in the mean time the banks are using their hoards of cash to slowly write off their assets rather than selling them off. The “stress tests” will expose the balance sheets for what they are.
A third step in deviating from the current plan is to allow the government to guarantee private investors from losses when they buy the troubled assets from banks. Private investors are sitting on the sidelines because no one knows how much the troubled assets are worth, and the banks are not pricing them attractively because they are sitting on government money trying to buy time. Geithner has proposed that the government buy the downside risk in these assets. This converts the high degree of uncertainty from a liability to an asset. A private investor can feel confident that if they invest 40 cents on the dollar they won’t lose that 40 cents and if the asset is worth more they could find a profit. Uncertainty and volatility adjust from a negative to a positive. This approach does mean the government (i.e. the taxpayer) could lose money, but it could also mean that if the market improves or the regulators are great at setting the guarantee prices, the taxpayer could actually profit. Either way, it’s a much more creative method of spending the “bail out” money currently flowing to banks.
If and when major banks are declared insolvent, the government will be forced to invoke the dreaded “N” word…Nationalization. At this point Nationalization is a feared term, but it is becoming clear that it is inevitable to some degree. Even free market advocates like former Fed Chief Alan Greenspan are beginning to discuss the inevitability. However, the Obama administration cannot discuss this step yet. From a political stand point, the only way Nationalization can be discussed is once there is clear evidence that it is the only option. The “stress tests” will create this evidence. Until that evidence is found the Geithner plan will continue to lack key details. Announcing plans to Nationalize would send Wall St. into a downward spiral greater than we are already experiencing.
If the government is shifting their focus away from artificially boosting up the banks, where is their focus turning? Obama’s recent speech in Arizona outlining a plan to reduce foreclosures shows a strong step towards supporting Main St. rather than Wall St. The Obama mortgage plan is designed to encourage a procedure that has been taking place through the financial crisis, but has yet to make a large impact; loan modifications. The Obama plan offers subsidies and payments to loan servicers, mortgage investors and borrowers encouraging all parties to take part in loan modifications to create affordable payment plans. The idea is to encourage more servicers and investors to allow modifications, rather than move straight to foreclosure out of fear home prices will continue to drop.
In addition to loan modifications, the Obama mortgage plan permits Fannie and Freddie to refinance mortgages they already hold up to limits of 105% of loan to value rather than the current limit of 80% loan to value. Lastly, the plan is pushing legislative efforts to allow bankruptcy judges to cram down mortgage balances. The goal is to allow judges to treat the portion of a mortgage exceeding the current value of a home as unsecured debt, thus allowing the judge to reduce the unsecured debt.
These are significant changes, but much development is needed to increase the plan’s impact. First, the modification plan only applies to owner occupied homes; this leaves a large population of second homes and investors without assistance. It is estimated by the National Association of Realtors that 40% of existing homes sold during the peak of the bubble, 2005, were purchased as second homes or investments. While helping these individuals isn’t politically popular, it is an absolute imperative if the intended purpose of the plan is to at stability to the real estate market. In addition, increasing the limits on refinances, while generous, will not impact many homeowners whose loan to value ratios are hovering as high 150%. Lastly, the plan does not address the main issue in the housing crisis; houses are greatly overvalued. In order for a mortgage plan to have any traction, loan principals need to be reduced. The general population is not willing to commit their dwindling cash flow to homes worth far less than the loans attached to them. However, principal reductions are exceptionally unpopular with lending institutions…perhaps another political chasm that may be crossed once the “stress tests” indicate the true nature of the banking crisis.
The Obama mortgage plan has clear drawbacks, but the shift is being made towards supporting Main St. The plan will help some borrowers and some lenders avoid some foreclosures, but it’s not a cure-all. Significant improvements to the plan are needed to create a larger impact, but a pattern supporting individual tax payers rather than large banks is a major deviation from the current plan, and this deviation has the potential to have large implications to personal lives and investments. The Obama plan could help you if you are a borrower at risk of defaulting on your loan or if you are already heading towards foreclosure. As the crisis and the plans to stabilize the crisis continue to develop, investment opportunities will continue to materialize. It is the task of every investor to make only well informed decisions, and understand that every investment carries inherent risks, especially in such a volatile investing climate.
The Opportunity in Real Estate
The key to investing in real estate is to educate yourself on the current market conditions, find quality investment opportunities, and act before the conditions change. PropertyVestors is here to help you accomplish these goals. In this edition of our monthly newsletter, we have highlighted three separate partners/projects that approach investing in the current market from different creative angles. Each of these strategies is designed to capitalize on the current market conditions, and because the strategies use different approaches to investing and utilize various locations, diversification of your investments remains a high priority. For institutions that are looking for additional strategies, please visit our asset management company website at www.PhoenixGAC.com.
Purchasing Rehabs for Rentals:
Blue Moon Capital
A $5,000 down payment is all it takes to transfer ownership while Blue Moon Capital completes the rehab of your rental property for you. BMC will facilitate, manage, complete & pay up-front for property rehab of an average $35,000 Scope of Work. You will get 20% Equity in the property as a head start, based on your lender's final appraisal, along with a 12-month home warranty. Current focus is Pittsburg, Atlanta, Baltimore, Cleveland, Kansas City, and Philadelphia. Property Management companies are ready to fill your rental property. Great cash flow opportunity!
The mortgage crunch has created the perfect investor opportunity....Experts say "BUY NOW" in modest markets such as Cleveland, OH. Foreclosures are high, prices are low and the rental market is strong. Yet, high down payment requirements and tight lending standards still prevent investors from taking advantage of one of the best buying periods seen thus far. Blue Moon Capital offers a $0 down financing, turn-key investment model not seen anywhere else. Learn how Blue Moon Capital is a great source for taking advantage of the BUYERS MARKET with a creative in-house financing model that requires $0 down and only a $5,000 Investment. Please contact PropertyVestors for more information.
Select Private Lending Investments:
American Homes
Due to the strict guidelines and "red tape" associated with bank financing these days, many real estate investors with great projects are turning to Private Lenders to obtain financing. The investors are able to obtain the financing quicker and easier, and the Private Lenders are able to have a great return with a secure investment. We have strong relationships with successful and established real estate businesses with strong track records. Our Spotlight for this month's newsletter is on our partner American Homes (AH). In December, a PropertyVestors member funded one of AH's projects, and you will notice a very positive quote from them in the newsletter. We currently have Private Lending opportunities open in Richmond, VA with AH, and the opportunities range from $15-$45k, offer 12% annual return, and have solid execution plans and security. Get more return than CDs, Bonds and Mutual Funds!
Preconstruction Syndicate Investments:
BridgePoint
A preconstruction syndicate is our most exciting, cutting edge strategy. PropertyVestors works closely with BridgePoint on our "Preconstruction Syndicate" deals as they are the leader in this market space. BridgePoint has created an amazingly creative strategy to capitalize on today's market conditions, with possible returns beginning at 40%. Their strategy includes protective addendums that are key to promoting profits and minimizing risk. Markets that we are currently focused on are Panama and Dominican Republic. Immediate opportunities available.
BridgePoint has developed a proprietary strategy that grants them the unique privilege of providing developers with the means to fulfill their requirements and, in exchange, negotiate terms that transfer much of the market risk from their purchasers to the developer.
Please contact us to learn more about these strategies and upcoming projects at invest@propertyvestors.com.
PropertyVestors is an investment group of CEOs, entrepreneurs and savvy real estate investors that are taking active steps to maximize their profits, while minimizing their risk by creating a diversified real estate portfolio. Investors are able to easily apply diversity in real estate geographically and by asset class through its various investment strategies and types of inventory.
Furthermore, PropertyVestors enables investors to capitalize on different market conditions. The strategies include conservative, private lending options; moderate with preconstruction syndication; and aggressive with partner deals in emerging markets, coastal regions and waterfront properties. With PropertyVestors, you can take advantage of a new investment model and innovative real estate strategies. PropertyVestors' real estate strategies and ongoing education can position you build your net wealth, while minimizing risk.
For general information about PropertyVestors or its offerings, email invest@propertyvestors.com or call 1-877-90-BUYER.
About the Author
Sarah Barry is the founder of PropertyVestors (www.PropertyVestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk.
Friday, January 16, 2009
Another Bank Crisis on the Way
We are closely monitoring the activity of many sources to determine the forecast for our investments and strategies in 2009. When have witnessed a number of historical events that have taken place in the last three months, but I wanted you to be aware of the latest updated that came out just today that you’ll be hearing more of. Thank you to Money and Markets for sending us the following information.
*Bank of America posts massive $1.79 billion loss in last three months of 2008, slashes dividends, accepts $138 billion emergency lifeline ...
*Citigroup reports total losses of $18.7 billion in 2008 — $8.29 billion in the fourth quarter ALONE ...
*New phase of bank crisis beginning ... soaring unemployment, plunging stocks, canceled dividends, and sinking investment income ahead
Just when everyone thought we’d seen the worst of the carnage in the U.S. banking system ...
Despite the $350 billion in TARP funds Washington already spent to save the big banks ...
Despite Treasury Secretary Paulson’s emphatic assurance to CNBC’s Maria Bartiromo that the banks are no longer in danger just a few days ago ...
And regardless of the $138 billion ADDITIONAL lifeline he’s just been forced to throw Bank of America yesterday ...
A new, more virulent strain of the bank panic contagion is now hitting Wall Street! Just this morning, Bank of America posted its first loss in 17 years — a whopping $1.7 billion in October, November and December — and cut the dividend it pays to stockholders.
Plus, Citigroup, which had already received $45 billion in government handouts, posted its fifth straight multi-billion dollar quarterly loss — $8.3 billion in the last three months of 2008, bringing its total losses for the year to a staggering $18.7 billion!
No wonder Obama’s advisers have freely admitted that they see an increasingly grave banking crisis beginning to unfold! No wonder they have scrambled to gain control over the second $350 billion in bailout funds! And no wonder ...
The Great Financial Famine of 2009
After the prior phase of this great banking crisis struck last fall, U.S. job losses surged, bringing the total number of paychecks lost by U.S. families to 2.6 million for 2008.
The stock market had a nervous breakdown — with stocks plunging as much as 1,000 points in a single trading session and the Dow crashing by nearly a third in less than 30 days. Reeling from the carnage, many companies delayed, postponed or even cancelled dividend payments to investors — and the Fed slashed interest rates, cutting yields on other income investments.
But now, it’s looking like last year’s disaster was little more than a dress rehearsal for the new phase of the banking crisis that’s beginning now!
Please take a moment to subscribe to our free newsletter at www.PropertyVestors.com to learn more about the importance of a diversified real estate portfolio and receive our monthly newsletter that outlines strong strategies for survival.
About the Author
Sarah Barry is the founder of PropertyVestors (www.PropertyVestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' smart real estate strategies enables investors to achieve double- to triple-digit returns on their real estate investments.
The Money and Market's portion was provided by Martin Weiss. This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
*Bank of America posts massive $1.79 billion loss in last three months of 2008, slashes dividends, accepts $138 billion emergency lifeline ...
*Citigroup reports total losses of $18.7 billion in 2008 — $8.29 billion in the fourth quarter ALONE ...
*New phase of bank crisis beginning ... soaring unemployment, plunging stocks, canceled dividends, and sinking investment income ahead
Just when everyone thought we’d seen the worst of the carnage in the U.S. banking system ...
Despite the $350 billion in TARP funds Washington already spent to save the big banks ...
Despite Treasury Secretary Paulson’s emphatic assurance to CNBC’s Maria Bartiromo that the banks are no longer in danger just a few days ago ...
And regardless of the $138 billion ADDITIONAL lifeline he’s just been forced to throw Bank of America yesterday ...
A new, more virulent strain of the bank panic contagion is now hitting Wall Street! Just this morning, Bank of America posted its first loss in 17 years — a whopping $1.7 billion in October, November and December — and cut the dividend it pays to stockholders.
Plus, Citigroup, which had already received $45 billion in government handouts, posted its fifth straight multi-billion dollar quarterly loss — $8.3 billion in the last three months of 2008, bringing its total losses for the year to a staggering $18.7 billion!
No wonder Obama’s advisers have freely admitted that they see an increasingly grave banking crisis beginning to unfold! No wonder they have scrambled to gain control over the second $350 billion in bailout funds! And no wonder ...
The Great Financial Famine of 2009
After the prior phase of this great banking crisis struck last fall, U.S. job losses surged, bringing the total number of paychecks lost by U.S. families to 2.6 million for 2008.
The stock market had a nervous breakdown — with stocks plunging as much as 1,000 points in a single trading session and the Dow crashing by nearly a third in less than 30 days. Reeling from the carnage, many companies delayed, postponed or even cancelled dividend payments to investors — and the Fed slashed interest rates, cutting yields on other income investments.
But now, it’s looking like last year’s disaster was little more than a dress rehearsal for the new phase of the banking crisis that’s beginning now!
Please take a moment to subscribe to our free newsletter at www.PropertyVestors.com to learn more about the importance of a diversified real estate portfolio and receive our monthly newsletter that outlines strong strategies for survival.
About the Author
Sarah Barry is the founder of PropertyVestors (www.PropertyVestors.com). PropertyVestors is a successful real estate investment group that creates above-market returns at below-market risk. Access to PropertyVestors' smart real estate strategies enables investors to achieve double- to triple-digit returns on their real estate investments.
The Money and Market's portion was provided by Martin Weiss. This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.
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