Sunday, December 28, 2008

Home prices to fall and fall and fall...

I just read an article forecasting more trouble for real estate in 2009.

The author seemed to be incredulous about that possibility, saying that some markets were even approaching Pre-Bubble price levels as though that was an organic impossibility.

If you check you will see that the last 2 real estate booms in the 70's and 80's resulted in prices dropping back to pre-boom levels before they took off again.

That is what statisticians refer to as a "regression to the mean," falling back to the historic trend line.

There are even more significant troubles for real estate in 2009 and beyond than are perceived by many real estate experts.

These troubles will continue to drive prices down even further. Although some markets are in fact approaching pre-boom prices, the pendulum may not stop at mid point and may actually swing all the way past pre-boom prices. Have you ever known a pendulum to stop mid way through its swing?

Here are some additional factors to consider:

The credit crisis is forcing banks to husband what little capital they have which is why they will restrict lending to the Very qualified.

How many prospective home buyers have 750+ FICO or Credit scores And 30% in cash for down payment, closing costs and bank mandated cash reserves? Especially since the US savings rate has been hovering around zero for the past decade.

Fewer buyers equal lower demand which means lower prices.

Also, how many more homes will be deserted by home owners who are Underwater, owing more than they owe? It is estimated that nearly 16% of owners with mortgages or about 8 Million home owners are in this situation. These desertions will add greatly to the bloated inventory of homes weighing down the market.

Finally, the only bright spot in housing will probably be extinguished in 2009 as interest rates will skyrocket once China is forced to stop buying our debt because of our dwindling purchases from them.

One report I read said that rental of a typical space on a freighter delivering goods to the US from China, fell from $236,000 for the trans Pacific crossing to $5,000!

Once China stops buying our Treasury Bonds, we will have to lower prices on them to attract other buyers, which will jack up their yields or interest rates as they move inversely to prices.

Our mortgage rates will then soar because they are pegged to the 10 year Treasury Bond yield.

So, despite the optimistic predictions of many rose tinted, shade wearing real estate "professionals" the likelihood of a rebound in housing is probably further away in 2009 than at any time since the real estate bubble burst.

Copyright 2008 Bill Young. Bill is offering a free, one year course for people who want to know how to quit living pay check to pay check and how to become financially free developing multiple streams of income from real estate and home based business assets. Register here: http://HowtoSolveYourMoneyProblems.Com

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Friday, December 26, 2008

Bailout This!

Bailout This!
I advise my personal finance sclients who have mortgages that they cannot pay, especially if they owe more than the house is worth, to stop paying their mortgages!

Sounds kind of radical, you say.

But when you understand what the financial system has done to these homeowners you may understand.

It is simply a matter of self defense, financial self defense.

The Wall St syndicates; banks, investment houses, bond insurers, bond rating agencies etc. conspired in true racketeering style, to produce fraudulent financial instruments and then foisted them onto unsophisticated borrowers.

Uncomfortable with the word, fraud? Fraud is a "deception made for personal gain," according to the dictionary.

Rating bonds backed by sub prime mortgages as investment grade, AAA, in order to collect fees, are a prime example.

Issuing insurance; credit default swaps, with no assets to back them up, in order to collect fees, is another example.

Knowingly falsifying data on mortgage applications, in order to collect fees is yet another example.

Without these key fraudulent practices by the mortgage and financial industry, the entire sub prime debacle could never have happened.

Now that the mortgage mess has "inextricably" blown up in the faces of the banks, essentially putting them out of business; they are demanding that home owners whom they have defrauded, continue to honor their commitment to pay their toxic mortgages and to now to bail them out with trillions of taxpayer dollars.

As one Wall St Bigwig said, "The banks are too big to fail and the homeowner is too small to bail."

So the battle lines are drawn. The banks on one side, want to drain your very life blood in order to keep you paying their mortgages, all the while robbing your children and grand children by blackmailing us and getting Trillions of our dollars to repay their losses so they can stay afloat.

These massive loans and cash infusions will produce huge deficits that will be passed onto future generations.

Unfortunately, there is no bailout for the home owner, only half-hearted measures like loan modifications that do not solve the borrower's problems.

Look at the widely touted Hope for Homeowners rescue plan. It was projected to save 400,000 homeowners from foreclosure. Only 312 loans were modified. And we now know that over half of all borrowers who have had their mortgages modified have become delinquent again in less than 6 months.

Modifications are not the answer. Slashing the balance of the outstanding loans to 80% of the current market value of the property, like they did in the First Great Depression is a far more effective remedy as it sets up a payment level that the borrower can afford.

Therefore, in the absence of any willingness on the part of banks or government to bail them out, borrowers are left to defend themselves against the unscrupulous banks. It is really a case of financial self defense. You know where the banks are coming from, it is up to you to fight them.

It is enough that most of these troubled borrowers, especially the 15 million or so who are "Underwater," who owe more than their house is worth, will lose their homes one way or the other.

That is their punishment for taking out a loan without having the advice of a financial professional or being represented at closing by their own lawyer; not the mortgage broker's or real estate broker's lawyer, at the closing.

But it should not mean that they have to ravish their life savings, retirement accounts or their children's inheritance to placate the bloodthirsty banks.

As an experienced real estate investor, former bank loan officer and Personal Financial Coach providing assisting troubled home owners, I have many people in this situation.

My advice to them is to stop paying their mortgage, do not give the banks one more cent of their hard earned money.

We then show them how to remain in their homes for up to two years or so without paying a penny to the banks so that they can accumulate some money to get a fresh start. In some cases, the banks pay my clients thousands of dollars to leave the premises.

What about the eventual foreclosure? Won't it hurt their credit?

Yes it will, but they would be in the same situation credit wise when they eventually lost their homes.

Their choice is to be evicted from their home penniless, after going through their life savings or with the savings intact and a few dollars to move on with.

Also, when the dust settles, they will be able to buy a house for less than half of what they paid for the one they lost, according to knowledgeable experts.

If the banks and their proxies in government will not bail out the home owner, he must bail himself out, period.

Copyright 2008 Bill Young. Bill is a Personal Financial Coach. You can sign up for a free, year long course with Bill in How to Solve Your Money Problems here: http://HowtoSolveYourMoneyProblems.Com

Monday, December 22, 2008

Why is the Price of Silver Down?

Silver and gold were caught in the downdraft of panic selling this summer and fell along with virtually all other commodities.

Look at oil, down 73%, wheat, 64%, nickel, 73% they all got hit badly. In the rush to liquidate positions to honor redemptions or to raise capital, the baby was thrown out with the bath water. Then, deflation set in and depressed everything further.

Although silver is down 45%, one thing to keep in mind is that you should not just look at silver's price in US dollars. By comparing it to other assets, the Dow, oil, and certainly real estate, you see that silver has not lost much. As far as the future, here is what David Martin, one of the most astute and successful precious metal experts has to say about future silver pricing:

"I believe that the supply of silver is so small relative to the population base that it won't take much new buying to carry silver far, far higher. You have to remember that silver hit $50 an ounce in 1980 and there was roughly four times more silver available above ground than now. Also, the money supply was about one-seventh the size that it is now. So if you use those facts--that the silver supply, instead of being 2 billion ounces of fine bullion, is less than 500,000 ounces and that the money supply, M1, is about six or seven times greater--that shows you a high, high potential that silver could certainly go up."

Anyway, you know that to be a successful investor, you must buy when the price is low if you expect to be able to sell when it is high, the exact opposite of what the public does. Now is the time to start building your silver nest egg at very reasonable prices before they skyrocket. (After all the money supply has DOUBLED since last summer! Although locked securely in bank vaults right now, you know that money will come out like a Tsunami at some point and send inflation and silver prices through the roof!)

You can check out this site to get started accumulating silver. It is where I got started in a small way buying silver coins: The coins are in such short supply that there are few places you can buy small quantities of them. Let me know if you want to buy larger quantities. Bill Young 646-961-3818

Monday, December 15, 2008

Deflation Is HERE!

Last week, the US Govt released a report that revealed a monumental destruction of wealth in America that sent chills up the spines of economists worldwide.

Just in the third quarter alone, U.S. households lost:
$647 billion in real estate
$922 billion in stocks
$523 billion in mutual funds
$653 billion in life insurance and pension fund reserves
$128 billion in private business interests.

Total destruction of household wealth in the third quarter: $2.8 trillion, the worst in recorded history.

That's 4X more than the government's entire $700 billion bailout package (TARP).

Total destruction of household wealth in the last year: $7.2 trillion or over TEN times more than the $700 billion TARP package.

You see how feeble and impotent the government's actions have been in the face of Massive deflationary pressures that are accelerating as time goes on.

We don't know how long or how deep the Deflation will be, but it is not a joke to say the un-sayable, The Greatest Depression may be around the corner. The only thing that is certain is that the cure is very likely to be Hyperinflation to get the economy moving again.

This sequence of events, deep deflation followed by hyperinflation is the stuff that great fortunes are made of. Look at the prices of gold and silver, they, like all the other assets are down considerably, 30 and 40% respectively and may go down lower as they are also the subject of massive market manipulation by several major banks.

These precious metals will always maintain their intrinsic value, no matter how low their price goes, as history proves.

This makes the vital task of spotting assets with good fundamentals that have been beaten down in the general deflation, easy. These are the ones that are a real buy now, and should be purchased even as they go lower under the sagging weight of the deflation and possible manipulation, as they will rebound into the stratosphere once the devaluation of the currency or inflation kicks into high gear.

In order for the world's debt to be repaid, the dollar will have to be skinned alive, devalued to the tune of 5 or even 10 new dollars for every one of the present ones.

This means that gold and silver will then sell for 5-10 times what they are selling for now!

I know that many of my clients are regular, middle class folk, who do not have the wherewithal to pump 10's of thousands of dollars into precious metals, as much as they should or would like to.

The easiest, cheapest way to accumulate silver, the more affordable of the two metals is to buy silver coins, American Silver Eagles, Canadian Silver Maple Leafs.

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Friday, December 5, 2008


This is a term coined by one my gurus, Dr Rubini, of NYU. What it describes is a nightmare scenario of a Stagnant economy caused by lack of demand. It is inherently different from its similar sounding cousin, StagFlation, which is a Stagnant economy caused by an intemperate increase in the money supply.

We are probably hip deep in StagDeflation right now. Unemployment is ballooning (533,000 lost jobs last month, November, 2008) because business is stagnant due to lack of demand. Imported cars are piling up on the docks because dealers will not accept them because no one is buying them.

High unemployment leads to less demand, which leads to more unemployment, which leads to less demand...You see the problem.

In deflation, the value of everything goes down due to lack of demand. Look at oil prices, which are poised to go below $40/barrel in the next few days. Look at gold and silver, down approx 30 and 40%, respectively in the last 6 months.
The value of the stock market has plummeted 40% this year as well.

Of course the banks and financial institutions are being battered by the drop in their capital due to the loss of value of their reserves, mainly their investments in real estate derivatives. This situation is forcing them to curtail lending which again hits demand, denying credit to businesses and individuals, depressing consumption further.

The only thing going up in this environment is the lowly dollar, since the supply i8s contracting, the very opposite of what happens in an inflation.

During this period of Stagflation and collapse of the banks and financial institutions, your best money strategy is to get out of your investments and into cash, since "things" are losing value and dollars are gaining value.

You will have a great opportunity to buy back your financial assets and real estate at the bottom of the StagDeflation cycle at pennies on the dollar!

However, with banks failing on a weekly basis and hundreds of them in danger of collapse, you want to keep your money in Treasury Only money market funds. FDIC insurance is for suckers! The fund does not begin to have anything approaching enough capital to guarantee anything like the amount of losses they are likely to face if even a fraction of the banks on the Bad list fail.

Treasury only money market funds can act as both business and personal checking accounts as well as money market funds. Your money cannot be safer. The government has Never defaulted on Treasuries, not in the Civil War, not in the First Depression, not in WW2.

Now, the answer to Deflation, is Inflation, printing money and pumping it into the economy, as the government is doing to recapitalize the banks as well as to jump start consumer spending. There is usually a lag of about a year between the growth of the money supply and the onset of inflationary prices.

As gold and silver prices will rocket upward as inflation sets in and their prices are depressed now, you will want to convert some of those Fat dollars to gold and silver now. You have about a year before their prices will start excellerating at which time the dollar will drop like a stone.

Recommendation: Sell deflating financial investments, real estate. Hoard cash, invest 20% in gold, silver: