merrill lynch

Mid-Day Market News & Commentary by Chris McLaughlin, December 22, 2008
http://www.shortsalesriches.com/welcome.html

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Yes, Virginia … there is a Santa Claus!  And he loves to represent buyers in foreclosure and make a ton of money.  So check out this amazing youtube video…Santa definitely showed up in Tennessee this year, early!  You have to see this!!

http://www.youtube.com/watch?v=XTvvi311YDg

and then make sure you register for our upcoming Recession Proof Investing webinar!  There are 17 slots available, first come first serve:

https://www2.gotomeeting.com/register/732240980

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Mortgage applications continue to be on the rise given the low interest rate environment, and one prominent CEO signaled a turning point, according to the Wall Street Journal.  Bank of America CEO Kenneth Lewis said that mid-2009 would be the stabilizing point for house prices, and the bank recently reassigned over 300 loan processors from the home equity division to the mortgage division.  The good joy was also at several other lending institutions. Loan applications were up 300% at Regions Bank, and applications at U.S. Bancorp surged from 11,000 to 30,000 in comparable period in December.  Why all the excitement?  Rates on a 30 year fixed mortgage now hover around 5%, representing the lowest level since reporting began in 1971.

Meanwhile, mortgage modifications continue to fail.  In the latest report by the Office of the Comptroller of the Currency, 37% of mortgages that were modified in the first quarter of 2008 were more than 60 days delinquent.   And for those modified in just 3 months another 19% were also 60 days behind.   John Dugan, who oversaw the preparation of the report, said:  “One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months or even eight months.”

The implosion in modifications means two things: there will be a ton of short sales and REOs in 2009.  Are you ready for them?  Go here to make sure you’re ready:

https://www2.gotomeeting.com/register/732240980

And the outrage over fat cat executives continues.  The Associated Press analyzed several of the bonus and pay structures from Wall Street execs who took bailout money.  Who was the most outrageous?

Well, there’s Merrill Lynch CEO John Thain, which took a nice $10 billion of taxpayer money.  Thain got earnings of $83 million last year, with a $15 million signing bonus when he came on last year.  And let’s not forget JP Morgan Chase’s CEO Jamie Dimon, whose bank took a cool $25 billion from Uncle Sam.  He managed to spend over $200,000 on private air travel commuting from Chicago to New York.  And then there’s Robery Kelly, the CEO of Bank of New York Mellon Corp, who spent over $178,000 on his personal car and driver.  And the madness continues …

Now, on to our real estate investor education section…

Dollar Cost Averaging and Short Sale Investing

Stock market investors are accustomed to using dollar cost averaging but the concept is relatively new to real estate and short sale investing. In part, this is due to the typical rise of real estate over time. Unlike stocks or bonds that tend to be highly volatile, real estate is usually quite steady and predictable over long periods of time. However, during periods of fluctuations and volatility, dollar cost averaging works exceedingly well for short sale investing.

In a Nutshell…Dollar cost averaging is an investment method where a constant amount is set aside to purchase whatever amount is available at that sum. So for example, when purchasing stocks an investor might decide to invest $5,000 per month rather than deciding to buy 100 shares per month. By emphasizing the dollar amount rather than number of shares, the investor will tend to purchase some shares at higher prices and some shares at lower prices with the eventual result of an “average” price per share taking place over time.

Likewise, real estate investors can do the same. Rather than worry whether or not you are purchasing at the bottom of the market, simply set aside a dollar amount which suites your budget to cover down payment, closing costs etc… then spend that amount of money rather than focusing only on the number of homes or properties purchased.  What you will notice is that over time, the average price per property tends to drop creating a solid rate of return on your overall investment portfolio.

How to Use…

This modified dollar cost averaging method is a great way to demonstrate a total rate of return on your entire short sale investment portfolio when dealing with banks, lenders or loan officers…especially if you are marginal on a specific property. It also assists in highlighting underperforming properties which can be quickly eliminated to increase the total performance of the portfolio as a whole.  Simply eliminate the least profitable property and then re-evaluate your portfolio performance…you will often be surprised at how much impact one property can make on the entire performance.

How to Calculate…

Calculating dollar cost averaging for short sale investments is similar to that of stocks or bonds. Simply make a list of all real estate purchases and the total priced paid then divide by the total number of investments to obtain an average purchase price. Do the same for the selling price.

Alternatives….

Other alternatives include performing the same calculations including the selling price, average transactional costs associated with each property and even holding fees. Better yet, learn how to set-up a series of spreadsheets to automatically generate this information on each property throughout every stage. It is the perfect way to spot areas in need of improvement or where work (and profits) get bogged down. If you notice a troublesome area, consider hiring an expert or teaming up with someone. It’s a fast, simple and effective manner to showcase your real estate portfolio and demonstrate a positive track record when working with lenders or others.

See you at the top!

 

Chris McLaughlin
http://www.shortsalesriches.com/blog

P.S.:   Don’t miss our webinar tomorrow, Tuesday, at 9 PM EST!  We’re holding this Recession Proof Real Estate Investing webinar once again on a weekend to accommodate all those who are unable to join us at night!  Click here, there are only 17 spots available:

https://www2.gotomeeting.com/register/732240980

Mid-Day Market News & Commentary by Chris McLaughlin, December 12, 2008
http://www.shortsalesriches.com/welcome.html

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Tired of being sick and tired of this economy and all the negative news that goes along with it?  We have an amazing recession proof investing strategy that we’ll reveal to you on our webinar that we’re hosting tomorrow, yes SATURDAY at 2 PM ET LIVE.  This is your opportunity to learn about RECESSION PROOF INVESTING.  We’re going to share with you TRUE STORIES of investors who made over $80,000 and over $115,000 using the methods we’re teaching!  Go here now, there are just 18 spots left:

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The good news keeps coming for mortgage rates: they hit a 4 year low at 5.47% and then dropped further to 5.33% yesterday, with no points or origination fees. The new rates have encouraged fence sitters to jump off and begin making purchases, and loan officers have reported a bounce in mortgage applications as well.

Bank of America announced late yesterday that it would be giving pink slips to over 35,000 employees as it finalizes its merger with Merrill Lynch.  The reduction will account for approximately 10% of the combined companies’ total employee base.  The announcement comes on the heels of a similar one from Citigroup, which announced last month that it would eliminate 52,000 jobs, or about 15% of its total workforce.

And in a sign of the greedy times on Wall Street, get this: the former Chairman of the Nadaq Stock Market was arrested for what investigators have described as a “stunning fraud that appears to be of epic proportions.” The fraud is estimated to be a “50 billion Ponzi scheme,” where the assets that Mr. Madoff would tell his investors about actually didn’t even exist.   I wonder whether Madoff will ask the Treasury for a bailout?  Think about it … banks lied about the value of their mortgage bank securities and induced people into loans they weren’t suited for, so why given them money and not Madoff?  Ok, I’m just kidding but you get the point!

And in the latest on the Big 3 Bailout, it appears that Congress hit a snag and can’t come to agreement … so the Bush Administration is reversing course and now suggests that the money might be able to come from the $700 billion TARP.  “Under normal economic conditions we would prefer that markets determine the ultimate state of private firms,” White House press secretary Dana Perino stated. “However, given the current weakened state of the US economy, we will consider other options if necessary, including use of the TARP program to prevent a collapse of troubled auto makers.”

Now, on to our topic of the day: Recession, Depression, Inflation, Deflation…What’s it all About and How Does it Impact Real Estate?

Ronald Regan once stated “A recession is when a neighbor loses his job. A depression is when you lose yours. If we were to apply the same logic to the real estate market, then the nation has been in the midst of a recession for some time as people have been steadily losing (or walking away from) their homes. In fact, there is a great deal of recent debate on whether the nation is already in a recession and heading for a depression or whether the easy money economics of the Federal Reserve will prevent a depression at the risk of creating further inflation…or perhaps world-wide deleveraging will actually result in massive deflation instead. Let’s take a few moments to examine real estate in each of the above scenarios’…

Recession. Unlike employment figures (or stocks), real estate doesn’t act the same as jobs during a recession. When a worker loses a job the position may be completely eliminated (or the stock completely wiped out). When someone loses a house it reverts back to the prior owner, heirs, bank or local government. Short sale buyers realize the inherent value in the home or property and act like a middle man to obtain a percentage of that value for themselves in the form of resale, rentals or retained equity.

Depression. During a depression the entire economy may slow down so much that little to nothing is being produced. Job loss often runs rampant as prices drop below the cost of production. Unemployment drives labor costs down – creating a downward spiral as unemployed workers are unable to afford more than the basic necessities. Again, jobs and stocks alike may all but disappear during a depression but a house remains standing. Housing is a basic necessity and tends to take top priority even during the most critical economic crisis.

Inflation. Inflation tends to drive the price of all commodities and assets higher as the replacement cost rises; real estate is no exception. With the Federal Reserve practically printing money out of thin air, the ability to own or control physical assets with a fixed rate of interest is often the best way to preserve wealth during periods of escalating inflation. On the other hand, the increased cost of production and labor often leads to more work for less pay among employees.

Deflation. Falling assets prices and world-wide deleveraging tend to drive down the price of commodities and assets including real estate. However, short sale buyers are often purchasing property at or near the fully depreciated value. Even those who experience further price drops still have other options available to bridge the gap until the market recovers; rentals, owner financing and factoring may each help raise needed capital or reduce individual debt repayments until the property has regained full value. 

 

More on Monday!

See you at the top!

 

Chris McLaughlin
http://www.shortsalesriches.com/blog

P.S.:

Are you ready to crack the law of the lid?  Are you ready to get serious about your business and wealth heading into 2009?  If so, you have to go now and watch Nathan’s youtube video!  Leave some comments on it …this is AMAZING to watch, and all TRUE:

http://www.youtube.com/watch?v=KQu75ne01Vg

After you’ve watched it go here and learn how to make serious money in a recession:

http://www.webinarwizards.com/custom/index.cfm?id=169716

P.P.S.:

If you missed the amazing Web2.0 webinar, the replay is available right here:

http://www.realestateinvestor.com/nathanspecial

Join us Tuesday, October 21^th (Tuesday) at 9 PM EST, 6 PM PST:

https://www2.gotomeeting.com/register/196317932

RSVP early as spaces are limited!

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You asked.  We delivered.

 

A comprehensive guide to short sale coaching that is incredibly affordable.  Choose between three short sales coaching plans that begin at less than $7 a day!  Visit us right now at http://www.shortsalescoach.com to jump start your bank account!

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The US financial markets were in positive territory around noon today.  The Dow Jones Industrial Average was up 136.44 to 8988.66 and the Nasdaq was up 11.22 to 1,722.51.   The S&P 500 was up 16.80 to 957.35.

 

Federal Reserve Chairman Ben Bernanke was grilled by members of Congress this morning before the House Budget Committee and signaled that more stimulus might be needed to keep the recession less severe.  “With the economy likely to be weak for several quarters, and with some risk of a protracted slowdown, consideration of a fiscal package by the Congress at this juncture seems appropriate,” Bernanke said.  The Fed Chairman said that consumers needed access to credit: “If the Congress proceeds with a fiscal package, it should consider including measures to help improve access to credit by consumers, home buyers, businesses and other borrowers.”

 

US Treasury Secretary Henry Paulson said that the equity stakes the US government has taken in banks “won’t cost taxpayers anything” and might also give taxpayers a nice return over time.  The former CEO of Goldman Sachs noted that the government will be receiving a reasonable return on its money and that the banks have a vested interest in paying the government back since the preferred dividend to the government increases over time. 

 

The CEO of Merrill Lynch, John Thain, indicated that the banking industry still has a rough road ahead.  “It is likely to take multiple years to repair the damage that has been done… This is not going to get better in three to six months,” he said.  Thain said the merger with Bank of America was still on track to close by the end of 2008.

 

Now on to our real estate investing educational section…

 

Why the Melt-Down isn’t Done and How Short Sales Might Save your Assets

Common investment wisdom goes something like this…buy a diversified basket of stocks, store a little away in savings and bonds then sit tight for 20, 30 or even 40 years and let the market work its magic. If the past several weeks haven’t demonstrated the folly of this strategy then perhaps it is time to take off the rose colored glasses and face the cold hard facts.

1.     For every winner in the market there must be a loser. Plain and simple – the money must come from somewhere. A lot of people “won” big money for many years and now the price must be paid. Beginning with the sub-prime mortgage crisis the Wall Street pundits proclaimed the worst was over only to meet the current liquidity and credit crisis head-on. Unfortunately, the biggest problem of all is still looming in the not so distant future. At 50x’s the size of the subprime mortgage mess, the credit derivative crisis is likely to dwarf everything else to date.

2.     Inflation isn’t just predictable – it is inevitable. The Fed has been printing money out of thin air for weeks; money that isn’t based upon production or the exchange of goods or services. Money that didn’t exist just weeks before. Money that will be difficult to repay with a rising rate of unemployment. Money that represents more debt.

3.     Risk has reared its ugly head. Although the market supposedly prices risk into the equation on a regular basis, the past few weeks have demonstrated how false that supposition really is; now that real risk has reared its ugly head banks don’t want to loan money and people are afraid to invest. Of course, the longer you hold a stock, bond or even insurance policy the greater the risk. Banks are going bankrupt. Insurance companies are getting bailed-out and trying to time the market only adds risk. On the other hand, buying real estate through short sales utilizes leverage while minimizing risk. You can sell right away, hold and rent, improve then resell or any combination in between.

4.     Boomers Want to Cash-Out. Think the stock market is due to a correction then things will get back to “normal”? The Baby Boomers want to cash-out their stocks and bonds in order to begin enjoying the good life and avoid unpleasant surprises like the stock market losing 20 percent in the first few weeks of October. The great sucking sound you hear is the sound of money leaving long term investments and being put into retirement and vacation homes, visits to the grandchildren and a lifestyle they love.

5.     Going Global. Capitalism has spread but foreigners are no longer as willing to support our standard of living here in the states at the risk of their own. In fact, they are becoming increasingly non-tolerant of bad debt, a falling dollar and low interest rates on the money they have been loaning us as a nation. Rising interest rates will only make our domestic problems more painful but we don’t dare play too hard or they may just cut our supply line entirely. Either way – the day has come where we must learn to share the wealth…even if it denominated in declining dollars. Get into hard assets while the getting is good. Chances are you will be glad you did for many years to come.

 

More on Tuesday…

 

 

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.: 

Interested in learning how to make over six digits a month flipping real estate short sales on autopilot? 

 

Join us Tuesday, October 21^th (Tuesday) at 9 PM EST, 6 PM PST:

https://www2.gotomeeting.com/register/196317932

RSVP early as spaces are limited!

 

P.P.S.: If you really want to get started building your wealth, then 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

and clicking here:

http://www.shortsalescoach.com

Alan Greenspan says that this is a once in a lifetime financial crisis.  Then why is someone I know making more money in this crisis than ever before?  Well, read on …

And I know what you’re thinking.  “What’s it going take to fix this mess?”

I have the answer … and if you’re reading this, you are probably part of the solution.  Read on …because the answer might surprise you!

But first, let’s recap.  The Dow Jones Industrial Average tanked again today.  It wasn’t pretty.  It lost 449 points, or 4.09% of its value.  And Uncle Sam came to the rescue again.

This time, however, it is serious.  Helping Bear Stearns out was one thing.  Giving investor confidence to Fannie and Freddie was another.  But all of a sudden, the perfect storm developed and Merrill Lynch and Lehman Brothers were is trouble.  The bull lost its horns and is now a cow, out to greener pasture somewhere…with plenty of foreclosures around the farm to boot.

Merrill was saved by Bank of America, but Lehman is done and sold some assets to Barclays today.  Now the bloody streets get even worse … Morgan Stanley tanked 25% today.  Goldman Sachs plunged 17% today.  All my buddies from Georgetown are crying.

Why?  Well, the AIG mess is quite a mess.  We’re talking over $1 trillion in assets that almost went on the auction block for pennies on the dollar.  That would spell financial ruin the likes we haven’t seen in a century.  It would make AIG’s 74 million clients a little panicky, too, don’t you think?  AIG still will be selling its assets, but in this case they’ll be doing so to pay Uncle Sam back, rather that giving folks a free to all in a liquidation.   So thanks, USA, for backing AIG with $85 billion.

What happened in real estate today (of course everything that’s happening is related to real estate).  Housing starts for August dropped to 17 ½ year low the U.S. Commerce Department reported today.  The seasonally adjusted annual rate was 895,000, which is off from the estimated 950,000 and represents a 6.2% drop.

But, as long as you are not a homebuilder, we in the real estate world know that this is actually a good sign… meaning that in order to recover, this is the medicine we need.  We need less new home inventory so that we can move more of the existing inventory we have, and to create an equilibrium of supply and demand.  A new house just isn’t going to compete against a bank-owned 2007 or 2006 house that is 30% less than the cost of construction.   Starts on single family homes were 33% below August 2007 levels at 630,000.

Ok, but Chris … you’re the guy that’s screaming that this is the biggest opportunity ever.  So where’s the silver lining you ask?

The Mortgage Banker’s Association reported that loan applications jumped 33.4% to 661.7 just last week, its highest level since May 9, 2008.  This shouldn’t be too much of a surprise because the government bailout of Fannie and Freddie gave more confidence to the market for mortgage backed securities.  So rates dropped.  This is good news for Realtors, good news for lenders…and perhaps good news for new home builders going forward.

And guess what?  When equity markets are awful, and investors are looking for hard assets, where do you think they are going?   Well, precious metals that’s for sure (gold had its best day ever today, up 11% to $80/ounce).  But don’t forget about bricks and mortar.  Some investor pulls out $500,000, does a self-directed IRA into real estate, and gets a 10% return on the cash just based on rents alone.  Then they get the upside.

I’m telling you.  Read me loud and clear: when financial markets plunge, the real estate market will be the beneficiary.  Just watch.  Or better yet, start taking action!

So who gets us out of this mess?  You do.  If you’re reading this, you’re probably a real estate agent or investor.  Once you get going, and do your thing, and start telling people that the real estate market is A LOT more stable than the stock market, you’ll begin to make sense.

And guess what else?  Banks are tanking.  They have to unload nonperforming assets. So short sales will become easier.  REO’s will become plentiful.  And realtor bank accounts will start filling up, not depleting.

So hang in there.  Sure it is painful for your 401(k), but you better be able to make it back in spades with the opportunity you’ve got in front of you.

Go for it!

Chris McLaughlin
Web: http://www.shortsalesriches.com/welcome
(800) 452-7627

P.S.: Thanks to many of you who have e-mailed us giving glowing reviews for including the CDs in the Short Sales Riches packet you recently got.  Yep, we threw that in at no extra cost because we want you to be able to not only read it, but live it.  And when you hear Nathan and I talking about how to make money in this market it all starts coming together, doesn’t it.

P.P.S.: Nathan just told me he thinks he’ll make $160,000+ this month.  Not bad for a kid that was home schooled with no formal education, huh?  All the guys with the fancy education work(ed) at Lehman, Bear Stearns, AIG, Fannie, Freddie, and other banks .. hmm… kinda ironic ain’t it?  Check him out at: http://www.shortsalesriches.com/welcome