Feb 15 2008

Credit Nation: The Back Breaking Debt Problem in the United States.

With so much talk about the credit crisis you would think that many people would realize that not all credit is good for you. So what is the reaction of our central bank leaders? They decide to extend more liquidity to banks but the only problem is the majority of the population is already maxed out. No longer can they support back breaking monthly payments. The credit card offers in the mail are now subsiding. There was a point in time where I was receiving an incredible 3 to 5 offers per day. It was simply unbelievable and unsupportable. As we have discussed in a previous article, residential real estate is predicted to decline by 20 to 30 percent and $20 trillion in wealth is stored here. You can imagine what is going to occur when prices start declining even further. We are only in the first rounds of the credit retrenchment and already our economy is on the verge of a recession. Read More

Feb 12 2008

The Housing Mindset: Investing in the Habits for Success and Facing a Tough Economy.

Having a wealthy mindset does not mean that you have to be living in Pollyanna. If you selectively choose to only read positive information and shelve the negative, you will fail to miss the point of a holistic and diverse investing mindset. Wise investors realize that money can be made in up and down markets. I am shocked by the mindset of some “experts” claiming that all is fine in the current marketplace. It is not. Yet they play a zero sum game that if you do not accept positive thinking, then you are simply doomed to a life of mediocrity. This is not the case. You must confront the brutal facts of the current situation. That is, we are in a recession and certain sectors will have a much harder time in the upcoming years. Let me list a few sectors that will continue to have problems well into the year: Read More

Feb 8 2008

$20 Trillion in Housing Wealth at Risk: The Potential Fall of the U.S. Housing Market.

Current estimates put American residential wealth at $20.66 billion. This is an incredibly large number and that is why even the relatively small percentage decline in prices last year has put the entire economy at risk. According to the Case-Shiller Index which tracks 20 metropolitan areas in the United States, the index is now down 7.8% on a year over year basis. The benefit of the Case-Shiller Index is that it tracks the sale of individual homes over time to get a more accurate representation of the current market than say comparable sales which is the typical appraiser standard of measuring homes. For example, an appraiser will normally look at 3 homes that have recently sold in your immediate area and divide the sales price to the square footage of the home. Of course this is similar to driving forward looking backwards.There have been recent estimates that real estate nationwide is expected to fall another 20 to 30 percent. This is a major contributing factor to the downturn because this is how much wealth will be wiped out: Read More

Feb 2 2008

Investing in Foreign Currencies: Recession Proof Investing.

As people panic to find places to store their wealth and preserve what they have earned, you may want to consider having a portion of your investment portfolio in foreign currencies. If you want to know how poorly the market has done over the past year, take a look at the following data: Read More

Jan 28 2008

What Caused the Housing Crash? Two Words: Crushing Debt.

Many of you had the chance to catch a glimpse of the 60 Minutes episode this past weekend called, House of Cards. In a nutshell, what has occurred with the housing market is a glorified Ponzi Scheme. The housing market was fueled and pumped by perpetual housing speculation motion. That is, the idea that the home you buy today will be worth a lot more when you sell it in the future. The majority of those complicit in the charade never stopped and asked the inevitable question of how they would react should prices go down.We’ve all had those moments where we let our mind wander and think, where does money come from? Yet the answer is so obvious and disturbing that we erase the thought. The housing market was built on the margin of real asset wealth and speculative hedging. No one is going to dispute that housing has an inherent value to it. Unlike over-the-counter (OTC) stocks that can quickly vanish into thin air overnight, home values will not decline to zero. There is a fundamental and intrinsic value to real estate. And in most places this is determined by local area economics and the ability of people to afford a monthly payment.

Read More

Jan 23 2008

A Housing Led Recession. Four Key Indicators Showing that this Recession will be Led by Housing.

With the emergency rate cut by the Federal Reserve, it is not a question about going into a recession but how deep of a recession it will be. The markets have not bounced aside from a few sectors including those bottom fishing in the financial sectors thinking a bail out is in the works or that the Fed will simply not let them fail. The technology sector is having a hard time digesting information from Apple and Intel showing weaker than expected quarters. Other tech giants have also announced that they will be cutting their workforce back. The Federal Reserve does not have much power besides a direct influence on monetary policy and at this point, that weapon is being ineffective. Now that they have exhausted that measure, they will attempt to use fiscal stimulus to jump start the economy. There is talk about rebate checks that will go straight into the hands of consumers but this would still take one or two months at the earliest. Also, we are entering a year where the IRS is working to revamp the tax systems to accommodate the large increase of those filing with the AMT tax. Read More

Jan 19 2008

What is a Recession? California Inflation, GDP, M1 and M3, and the Art of the Federal Reserve.

It shouldn’t come as a shock to you that California has a higher rate of inflation than the rest of the country. If we are to look at historical measures, what should the price of a California home be in 2007 accounting for inflation pressures? Using the CPI for California, which includes all urban consumers we can get an idea how fast housing prices have outpaced even California inflation which has a higher rate than the rest of the nation. Let us take a point in time where home prices were reasonable in California. We will use the base point of 1999. Let us take a look at a region that has seen some of the wildest inflation, Southern California: Read More

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