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.
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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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