Bank Stress Test Stress
Real Estate News & Commentary by Chris McLaughlin, May 5, 2009
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Stress test
Banks are expected to be briefed on the official results today, but according to CNBC, U.S. regulators have deemed that about ten of the 19 U.S. banks being stress tested will need to raise more capital. The institutions undergoing stress tests include Citigroup, Bank of America, Goldman Sachs Group, JPMorgan Chase, Morgan Stanley, MetLife, Wells Fargo, PNC Financial Services Group, US Bancorp, Bank of NY Mellon, SunTrust Banks, State Street, Capital One Financial, BB&T, Regions Financial, American Express, Fifth Third Bancorp, KeyCorp, and GMAC. Fred Dickson, chief market strategist at D.A. Davidson & Co, said on Friday that Citigroup, Bank of America, JPMorgan, and Wells Fargo are expected to be among the companies needing to boost their reserves.
Oddly enough, AIG, the insurer we all love to hate isn’t on the list. According to CNBC’s source, Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner will release the findings of the regulatory stress tests to the public on Thursday. Not everyone is thrilled about the stress tests; Wayne Abernathy, an executive at the American Bankers Association and a former Treasury official says, “I think the great risk there is that you create some new uncertainty and concerns at the very time the financial condition of the banking industry is turning for the better.”
Tax crackdowns a very bad idea
The first of many criticisms to come of Obama’s tax “crackdowns” comes from Wilbur Ross, Chairman & CEO WL Ross & Co. In classic Obama style, the changes have been described in glowing terms as ways to, “…cut taxes for American families, increase incentives for businesses to create jobs in America, and reduce the deficit.” According to Ross, “It almost sounded as though he was intending to be punitive on corporations that had extensive overseas operations. To the degree that that’s true I think it would be a huge mistake, because one of the reasons that many of the U.S. corporations are prospering is in fact their participation in the more rapidly growing markets overseas.
And I think that’s a very dangerous slope.” David Roche, global strategist at Independent Strategy, thinks the reason Obama is scrambling to drum up tax revenue is obvious; he needs money – fistfuls of money – to replace at least some of the astronomical debt he’s creating. “First of all, the Obama administration is going to see government debt-to-GDP in the U.S. go to 80 percent. He’s running almost unfinanciable budget deficits close to 12 percent this year, probably 8 percent in the long term. Its (U.S. government) going to go after anything that is money in order to try to limit the damage its doing through its fiscal policies, and that includes the rich and corporations,” Roche said.
And then there was more…
Even if corporate profits revert to trend, the extra revenue from tax crackdowns won’t lower U.S. deficits much, but if, as is far more probable, profits revert to somewhere around their 1994 share of GDP, government tax revenues will decline by far more than Obama’s plans are expected to raise.
On the revenue side, the long-term trend in corporate taxes as a percentage of GDP is approximately flat. They accounted for 2.05% of GDP in 1993-94 and 2.13% in 2007-08 – similar economic years, albeit with the economy heading in opposite directions. But corporate profits were a far higher percentage of GDP in 2007-08, so the net effective tax rate declined from about 24.1% in 1993-94 to 19.4% in 2007-08. So who is next on the “tax crackdown” block?
Economy bad but getting better –do you believe the government yet?
The U.S. services sector contracted for the seventh straight month in April but at a slower pace. The services index from the Institute for Supply Management came in at 43.7 in April compared with 40.8 in March. Any reading below 50 indicates the service sector, where most Americans work, is contracting. Still, the reading was higher than economists expected and supposedly provides another sign the economy could be bottoming out. Where have we heard that before? Oh yeah, from every government spokesman since this whole mess started. And again today — Federal Reserve Chairman Ben Bernanke just told Congress that the economy should pull out of a recession and start growing again later this year. “But,” Bernanke warned that even after a recovery gets under way, economic activity is likely to be subpar, with businesses cautious about hiring, driving up the nation’s unemployment rate, and causing “further sizable job losses” in the coming months.
So how exactly is this an improvement again? Bernanke continued in this vein: In the months ahead, consumer spending should be lifted by tax cuts contained in President Barack Obama’s giant humongous multibazzilion stimulus package, “But” rising unemployment, sinking home values, and cracked nest eggs will still weigh on consumers willingness to spend freely. Well, I feel like dancing for joy…how about you? And next comes inflation…
Libor falls to lowest since 1986
The 3-month Libor fell to 0.99%, below 1% for the first time since 1986, when the British Bankers Association started keeping records. Libor, the London Interbank Offered Rate, is a daily average of rates that 16 different banks charge each other to lend money in London. It is a closely watched benchmark and it is used to calculate adjustable-rate mortgages.
“This is good news,” said Gus Faucher, director of macroeconomics, at Moody’s Economy.com. “It means that banks are trusting one another again and that we’re getting to the bottom of the problems in the financial system.” The 3-month Libor soared to 4.8% in October after the collapse of brokerage Lehman Brothers, and the resulting market volatility caused banks and investors to hoard capital. Oddly enough, this actually IS good news.
Golden Rules of Short Sale Profits
Whether you are brand new to short sale investing or well on your way to building a small real estate empire chances are you will benefit from these Golden Rules of Short Sale Profits.
Rule #1: All that Glitters isn’t Gold…but don’t discount dirt either. Learning how to keep your priorities straight isn’t easy when starting a short sales career but there is an orderly progression that can help. Begin by learning how to increase your savings, move to the growth stage and finally – go for the big bold profits. Think of it like medicine…a physician takes an oath that mandates “first do no harm”. If more investment bankers and brokers followed that simple rule the current economic crisis would never have come into play. Fortunately, individual investors can still take control of their own financial future by prioritizing profits beginning with the preservation of capital and moving into the full formula to build real wealth.
Rule #2: Sometimes the pot of gold is covered in weeds. Investing in short sale real estate isn’t like buying art or antiques….in fact, beauty might matter a lot less than many novice investors imagine. Unlike jewelry, art, antiques or other investments the value of real estate doesn’t reside solely in the level of attractiveness. Plenty of profit can be made by run down real estate that provides instant access to sweat equity and quick cosmetic fixes. Like a genie in the bottle, the true value of any property should be based upon the rate of return…not some arbitrary concept of beauty. Look beyond the basics to determine the profit potential of the property.
Rule #3: Better to have gold in hand rather than the heart. While a heart of gold is all good and well it does little for the circulation…biological or budgetary. In fact, going all the way back to biblical days there is a petition requesting for a man not to be so poor that they curse their creator. It’s a fundamental fact, poverty is not a virtue nor does it lead to the ability to do for others. Treat your short sale investments like a business…because they are. What you do with your profits is up to you…help others, volunteer or give to charity to your heart’s content.
Rule #4: Silence isn’t always golden…sometimes it’s just yellow. Short sale success depends upon a constant flow of offers, acceptance and negotiation. Silence is a sure-fire route to failure so if you find yourself intimidated, cowardly or simply unable to handle the negotiation process team up with mentors or brokers with expertise in your area. Better yet, take time to learn the common mistakes and have prepared plans of action in place to deal with it…not only does it build confidence but it keeps the creative powers flowing. Learn to walk the walk and talk the talk.
Rule #5: He who has the gold makes the rules. Whether your favorite form of investment is bullion or tangible assets like real estate, one thing is certain…real wealth doesn’t reside in paper instruments. Investing in short sales is one way to be the master of your own little part of the world…make your own rules, enjoy the freedom that financial independence allows for yourself and your family by owning real wealth.
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com/welcome.html
P.S.
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Copyright Loss Mitigation Institute 2009.
All Rights Reserved.
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About the author:
Chris McLaughlin is widely known as America’s top
Real Estate Attorney and Investment Consultant.
* As the top Florida foreclosure and pre-
foreclosure expert, he oversees more than
100 short sale & REO closings each month
* Long-time authority on real estate investing
and rapid flipping of distressed homes. Owns
portfolio of nearly 100 high-value, high-profit
properties
* Owner and Supervising Broker of one of Florida’s
largest Real Estate firms, running 4 different
offices, supporting nearly 450 agents, uniquely
positioning him to help thousands of investors
make money in the biggest market opportunity ever!
* Highly sought-after speaker, consultant, and
seminar leader for current trends and hot topics
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Wealth Building
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