donald trump

Mid-Day Market News & Commentary by Chris McLaughlin, October 14, 2008

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The banking industry as many realtors and real estate investors know it is gone.  It was replaced by Uncle Sam.  The U.S. government announced today that it would allocate $250 billion to purchase preferred stock in banks—and nine of the largest banks in the U.S. have agreed to such an equity sale.  The deal also came with strings attached to help calm the outrage over excess (perhaps the party at the St. Regis by AIG executives, to the tune of $400k, was a bit much??) on Wall Street: executive compensation and golden parachutes will be limited. 

The Wall Street Journal reported this morning that the following banks were a part of the plan:  Goldman Sachs, Morgan Stanley, J.P. Morgan Chase & Co., Bank of America, Citigroup, Wells Fargo, Bank of New York Mellon, and State Street Corp.   The Journal noted that the deal comes with a 5% dividend to the government that will increase to 9% after several years.  Fact check: a few weeks ago I would have received e-mails correcting me for calling Goldman Sachs and Morgan Stanley banks instead of investment banks…but they are banks now.

So what did King Henry say?

“Government owning a stake in any private U.S. company is objectionable to most Americans – me included,” U.S. Treasury Secretary Henry Paulson said. “Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable.”

Other pundits of the business world also weighed in on the latest government action.  Donald Trump, speaking to CNBC’s Squawk Box, said that but for the government intervention “We were headed for Great Depression No. 2.”  Trump liked the plan to inject capital into the banks as opposed to buying up all of the troubled assets: “It’s almost socialistic, but I like it, really like it,” he noted.

Now onto our real estate investing and education section…

Recession Proof Your Income with Short Sales

It’s official. The IMF (International Monetary Fund) has openly predicted a major global recession as being “highly likely.” If the idea of rising prices coupled with a falling dollar, economic uncertainty and a pink slip coming soon to cities near you doesn’t sound attractive then chances are you have already started your search for safety. Unlike millions of other Americans frantically looking for returns in all the wrong places, some savvy investors are learning how to use short sales to recession proof their income. 

Short Sales provide an alternative source of income. Although unemployment rates are rising, to quote a common cliché’ “You aint seen nothing yet.” The big bail-out and dramatically reduced lending standards between banks and major corporations has not trickled down to Main Street – yet.  Even companies with healthy balance sheets are likely o be negatively impacted by their trading partners or suppliers with less than stellar credit lines or other interruptions. Reduced demand and slumping sales are creating additional pressure likely to result in further cut-backs in coming months. The resulting picture is clear – pink slips, pay-cuts and frozen wages are expected while inflation continues to take a toll on individual budgets. Supplement your income and investments with short sales.

Individual Diversification. Short sales have the unique ability to act somewhat like a hybrid investment/business model. The use of leverage to build impressive equity positions coupled with great tax advantages mimics many of the advantages experienced by small business owners sans the need for inventory, labor and long term commitment to workers compensation etc… while the instant equity, appreciation and ability to maximize returns mimics the best of the investment world.  Additional advantages inherent in the holding of tangible assets further increase the individual level of diversification in a paper denominated world.

Flexibility. Perhaps the largest single benefit to be derived from short sales is the flexibility afforded through the purchase of various types of properties. Although most short sales center on single family residential properties, it is possible to purchase a wide variety of commercial, agricultural, retail, commercial or other types of land in addition to deriving benefit via a wide range of other activities including:

• Factoring

• Owner Financed Sales – all or partial.

• Rentals or Leasing – short or long term including
vacation, land lease, traditional rentals, etc..

• Farming, Agricultural, Timber, Mineral, Water or Other
natural resources.

• Business use or improvement then sale of business including property or just business while leasing back land/housing.
More on Wednesday…

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.: 
Join us for our fr’ee Webinar this coming Thursday at 9 PM EST/ 6 PM PST that will reveal the Top 12 Strategies on Getting Rich with Short Sales:
https://www2.gotomeeting.com/register/945219328
 
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:

http://www.shortsalesriches.com/welcome.html

 
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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.: 

Join us for our fr’ee Webinar Monday night at 9 PM EST/ 6 PM PST that will reveal the Top 12 Strategies on Getting Rich with Short Sales:

https://www2.gotomeeting.com/register/663312500

 

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:

 

http://www.shortsalesriches.com/welcome.html