Mid-Day Market News & Commentary by Chris McLaughlin, December 15, 2008
http://www.shortsalesriches.com/welcome.html
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All eyes were on the Federal Reserve today as the members of the Federal Open Market Committee sat down to debate whether to reduce rates even further. The decision is due out tomorrow, and most analysts believe that Fed will cut an additional half percent, bringing rates to a historic low of .5%, with prime then becoming just 3.5%.
And no decision yet from the Treasury Department or White House on how to bail out the Big 3 Automakers after Congressional talks failed last week. Bush is considering using the $700 billion bailout package for the automakers, but opposition from others in the government has slowed any announcement of a deal. In particular, Federal Reserve Chairman Ben Bernanke sent a letter to lawmakers last week indicating that he was “extremely reluctant” to lend to the car manufacturers.
Now, on to our real estate investing commentary …
Do You Hear What I Hear?
During this most festive of holiday season, the sound of “cha-ching” normally rings just as loudly as that of the carolers and party-goers but this year is different. In fact, instead of singing and the sound of cash registers ringing the average short sale investor is more likely to hear wailing and gnashing of teeth from investors both near and far as the Federal Reserve reports that Americans have lost $2.8 Trillion in Net Worth…since last quarter!
Meanwhile, charge-off and delinquency rates for residential real estate loans have reached 1.45 for all banks and a whopping 1.66 for the 100 largest banks. Delinquency rates for residential real estate have now surpassed 5.08 for Q3 of 2008; the highest rate for residential real estate in over 25 years. With the economic news at home sounding so lackluster, it might lead some to seek returns in the foreign exchange markets. So, should potential short sale investors sink funds into global money market accounts or continue to pursue opportunities here at home in the current “buyers market” for real estate?
If the news domestically is hard to hear then consider the global perspective; entire nations are going bankrupt. Iceland, Hungary, the Ukraine, Pakistan and others are either facing bankruptcy or in the midst of a massive bail-out by the International Monetary Fund (IMF). Lest you think “it can’t happen here” consider this; Argentina went bankrupt as recently as 2001 as did Russia in 1998. Once an economic powerhouse, Germany has gone bankrupt twice in the recent past including 1923 and 1945. With interest rates in excess of 20 percent, Argentina is attempting to inspire investors to take a chance on investing in their nation; to date, there has been an apathetic response at best.
According to Stephen Jen, a currency specialist with Morgan Stanely, a 1 percent drop in growth could reduce the flow of capital to “threshold countries (those in a financially precarious situation) by more than half! Should this transpire, the IMF would not have enough reserves to “bail-out” each individual nation resulting in Argentina style cycle of events including frozen bank accounts, withdrawal caps, hyperinflation and social unrest. Dare to guess which nation “guarantees” the IMF slush fund should it run dry? Yep-the good ole USA. So much for “Plan B”. As these threshold nations face economic disaster, the trading partners and surrounding nations would be exposed to further strain…setting the stage for a global economic meltdown.
Experts such as Nouriel Roubini are already calling for the most severe global crisis since the Great Depression while others like Ron Paul are openly questioning the Federal Reserve about contingency plans in the event of global economic collapse. Plain and simple; fiat currency around the world is risky business even with the prospect of double digit returns. On the other hand, real estate has historically fared well even during dollar devaluation.
Don’t let me get you down … my point in writing this is only to show you that real estate is the SAFE investment right now, and if we have a method that shows you how to buy low and sell fast, wouldn’t that be of great help to you?
See you at the top!
Chris McLaughlin
http://www.shortsalesriches.com/blog
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