Rule 1 – Decide if you are a trader or an investor
Rule 2 – Don’t trade if you cant afford to lose
Rule 3 – Never lose money

-Interest rates will go up, negative impact on housing
- Summer 2009, mortgage resets were $15 billion a month
- September 2008 (beginning of the housing collapse), mortgage resets reached $35 billion
- Resets to reach over $30 billion in 2010 and near $35 billion for 2011
- Resets drastically taper off 2012 and beyond

Stock Market wrap up for 2009

- Dow up 61% from March lows, up 20% on the year
- S&P up 25%
- Nasdaq up 45%

INDEX 2009 CLOSE Y-T-D
————————–
DJIA 10428.05 +18.82
DJIT 4099.63 +15.90
DJIU 398.01 +7.35
NYSE 7184.96 +24.80
NASDAQ 2269.15 +43.89
S&P 500 1115.10 +23.45
S&P MIDCAP 726.67 +35.00
S&P SMCAP 332.65 +23.79

Between 2001 and 2006 real estate appreciated 12.4% compared to stock prices at 4.3%. Since 1978 though your primary residence has increased 8.6% compared to 13.4% (S&P500). As we can see today the rate of return will revert back to 3% a year which is a little above inflation. For those keeping track, the stock market this decade has produced the worst total returns since the 30’s. The S&P 500 has returned a -10.8% since January 2000.

Many might argue leverage is more powerful within real estate than the stock market. While this is true, take a look back over the past three years at all the foreclosed homes due to this concept, not too appealing is it? The jackpot is found in rental property, the key is to purchase a distressed property for well below fair market value (20% or more) with approximately a 30-40% down payment. The returns on this investment will trump any stock market return. Of course the property must be located geographically in a highly dense area preferably close to a major city. With this in mind jumping into real estate thinking that leverage alone will return extraordinary returns is a losing scenario. There is plenty of risk and the expected return may elude an investor for years to come.

thevoice@voicedup.com

thevoice@voicedup.com

Goldman Sachs Group Inc (GS), facing criticism over its outsized profits and bonuses, will contribute $500 million to programs that help small businesses, the company said on Tuesday. The advisory council for the initiative will include Chief Executive Lloyd Blankfein, investor Warren Buffett and Michael Porter of Harvard Business School. Read Here

thevoice@voicedup.com

“Over the last year, policymakers have boosted the housing market by reducing foreclosures, slowing the pace of distressed sales, and stimulating demand for owner-occupied housing. The effects of these policies are evident in a swelling foreclosure pipeline, a surge in first-time home purchases, and abnormally low mortgage rates. We estimate these policies have reduced foreclosure supply by 450,000 and increased demand by 200,000. Taken together, these moves might have added 5% to home prices nationally. If this estimate is correct, it suggests most of the increase in home prices since the spring—which has totaled between 2% and 4% in seasonally adjusted terms—has been due to temporary factors.”

“In 2010, we expect some of these supports to fade. Fed and Treasury purchases of mortgage-backed securities will taper off, and the pause in foreclosures created by federal mortgage modification programs may end. The federal tax credit for first-time home buyers appears likely to be extended for at least a few months, but probably no longer than through the first half of 2010.”

“Our conclusion is that despite the better recent data—including stronger-than-expected report on existing home sales in September—the risk of renewed home price declines remains significant, and our working assumption is a further 5%-10% decline by mid-2010. However, the cloudy policy outlook adds to our already considerable uncertainty of where house prices will ultimately bottom.”

thevoice@voicedup.com

-Aid current manufacturers in the American economy
-Expand the current industrial base
-Lift exports around the world
-Allow for more aggressive pricing overseas
-Narrow the trade deficit by closing the gap between exports and imports

And now the downside to a devalued dollar:

-Main factor is oil rises above $75
-Purchasing power decreases compared to the rest of the world
-Greater possibility for higher interest rates and inflation
-Higher costs for all imported goods
-Trade tensions between Europe and Asia will increase

thevoice@voicedup.com

thevoice@voicedup.com

“It’s almost Armageddon if the Japanese and Chinese don’t buy our debt,” Robertson said in an interview. “I don’t know where we could get the money. I think we’ve let ourselves get in a terrible situation and I think we ought to try and get out of it.”

“If the Chinese and Japanese stop buying our bonds, we could easily see [inflation] go to 15 to 20 percent,” he said. “It’s not a question of the economy. It’s a question of who will lend us the money if they don’t. Imagine us getting ourselves in a situation where we’re totally dependent on those two countries. It’s crazy.”

”“The U.S. has to quit spending, cut back, start saving, and scale backward,” Robertson said. “Until that happens, I don’t think we’re anywhere near out of the woods.”

“We’re in for some real rough sledding,” he said. “ I really do think the recession is at least temporarily over. But we haven’t addressed so many of our problems and we are borrowing so much money that we can’t possibly pay it back, unless the Chinese and Japanese buy our bonds.”

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FAS 115 requires only debt and equity securities to be reported at fair value. The July proposal “Accounting for Financial Instruments” states: all financial instruments, including loans, will be presented on the balance sheet at fair value. Also, any changes in value will be recognized in net income or other comprehensive income, with an optional exception for “own debt,” which will be measured at amortized cost. What this mean is that any credit impairment (losses on loans) will be reported under net income.

Below is the July 15, 2009 FASB Board meeting details. The Board agreed to propose a model to improve financial reporting for financial instruments.

• The Board agreed to propose that all financial instruments will be presented on the balance sheet at fair value with changes in value recognized in net income or other comprehensive income with an optional exception for own debt in certain circumstances, which will be measured at amortized cost. For those financial instruments whose change in value is recognized in other comprehensive income, amortized cost will be displayed on the balance sheet in addition to a fair value adjustment to arrive at fair value.
• The Board agreed to propose that changes in an instrument’s value may be recognized in other comprehensive income on the basis of qualifying criteria related to an entity’s management intent/business model and the cash flow variability of the instrument. The Board will provide additional guidance on how to apply those qualifying criteria. The Board agreed to propose that changes in value for derivatives, equity securities, and hybrid instruments containing embedded derivatives requiring bifurcation under FASB Statement No. 133, Accounting for Derivative Instruments and Hedging Activities, will be recognized in net income. The Board agreed to propose that for all financial instruments, interest and dividends will continue to be recognized in net income. Credit impairments, as well as realized gains and losses from sale and settlement, also will be recognized in net income. The classification of instruments will be determined at initial recognition of the instrument and will not be subsequently changed.
• The Board agreed to propose to require one statement of financial performance with subtotals for net income and other comprehensive income. It also agreed to propose to continue to only require earnings per share for net income.

The earliest this could be implemented is early 2011 and I am certain that banks will strongly lobby against any new mark to market rules that could repeat the events of late 2007.

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