Market Turmoil Continues Friday

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Another crazy & volatile day today on the stock market with the Dow Jones Industrial Average plunging at one point nearly 700 points.  The market has literally plunged 21% in just 10 trading days, highlighting the lack of confidence that investors and consumers have in the world’s financial system.   At noon the Dow was down almost 400 points. 

 

President Bush spoke earlier today: “We are a prosperous nation with immense resources and a wide range of tools at our disposal,” the President said.  He spoke of the $700 billion Bailout package, noting that “The plan we are executing is aggressive. It is the right plan. It will take time to have its full impact. It is flexible enough to adapt as the situation changes. And it is big enough to work.” 

 

Some real estate transactions are also falling victim to potential homeowners that might have lost a lot of their downpayment in the last week.  The National Association of Home Builders reported that contract cancellations have spiked to 30% versus its more standard rate of 20%.  And of course during the housing boom this rate was as low as 5%.  

 

But, as Donald Trump noted on Larry King’s CNN, there’s never been a better time to buy a house…so I expect more and more investors pulling money out of the stock market and buying secure assets like homes that they can rent.

 

Now, on to our real estate investor education section …

 

What About those New FDIC Limits? Wolves in Waiting

One of the most common reasons to begin buying real estate via short sales is a lack of viable alternatives…what else are you going to do with your money? Stocks? Bonds? Savings Accounts? Not only are each of these options subject to major downturns but they are becoming increasingly risky due to a loss of purchasing power due to rising inflation as well as the potential for collapse. The bailout isn’t working and your financial survival may depend upon owning hard assets. So, what about liquidity and cash savings? Consider your options carefully…

The newly increased FDIC insurance limits have been making headlines for days – reportedly as a major boon to individual investors and savers. Now individuals can place up to $250,000 (up from a former $100,000) into bank accounts that are fully insured by Uncle Sam. For those seeking safety (and who isn’t?) it might seem like great news…don’t believe a word of it. Here is what the media isn’t telling you…

1.     The increased FDIC insurance limits are set to expire at the end of 2009. What will you do with your money then? No, you won’t be putting them into savings bonds – see #2 – and you may have noticed a decidedly un-bullish trend on Wall Street.

2.     Savings Bonds have been severely limited. In a nearly unprecedented move earlier in the year, the United States Treasury set major restrictions on the purchase of Treasury Bonds allowing only $5,000 of any one type during the year and making paper bonds more difficult to purchase than ever before.

3.     Bad Balance Sheets Acquire New Funds! Here is where you need to do your homework and understand what is taking place. In the past, large investment banks operated very differently than those that hold your checking and savings account. They had different rules and the funds didn’t mix. With the demise of the investment banking model and the recent consolidation of major investment banks with regular banks, the massive liabilities and bad debt held by the investment bank is now being “offset” by the newly acquired assets of regular banks. Those “real funds” –ie, your savings accounts and other hard-earned money – held by the bank, are now being used to prop up the balance sheets of former mega investment banks with the full “faith and credit” of the United States government which has now agreed to guarantee your funds up to $250,000…at least until the end of next year.

Unfortunately, there are a few potential problems with this scenario:

The FDIC only has enough reserves to cover one mega bail-out. Afterwards, their options are either to continue to print money out of thin air…which could lead to hyper-inflation…or only pay a percentage of guaranteed funds. Either way – you lose.

During times of severe financial crisis, banks control your money – not you. They get to decide how much of it you can withdraw at any one point and time and how frequently.  

The same reason banks don’t want to lend money to one another…and nations are beginning to cut back as well…is the same reason you should think twice about “lending” your hard earned money to these same big investment banks. Yes, it might help offset their balance sheets and stabilize the economy but at what cost to your financial future?

Remember, real estate has real or intrinsic value. It provides shelter, safety and satisfaction during times of financial and economic uncertainty. It can be traded, sold, swapped, lived in, farmed, mined or worked in during any type of situation. Paper based stocks and bonds can – and have – lost all their value practically overnight. Bank accounts can become worthless and even governments can rise or fall. Hard assets like real estate or commodities perform the best during times of economic difficulty but few people have the ability to store up vats of grain or barrels of oil in the back yard.

Frightened by future economic prospects? Think twice about building a big savings account and put it into something tangible like short sale real estate instead!

See you at the top!

 

 

Chris McLaughlin, J.D., M.B.A.
web: http://www.shortsalesriches.com/welcome.html
e-mail: info@shortsalesriches.com

Phone: (800) 452-7627

P.S.: 

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P.P.S.: If you really want to get started building your wealth, now that recognize that your 401(k) isn’t going to do it, what are you waiting for?  Take action today! A journey of a thousand miles begins with a single step. Take that step right now by clicking here:

 

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