|
|
MAKING CENTS OUT OF THE NEWS
Blog #10
(March 3rd, 2009)
IN THE DARK BEFORE THE DAWN
By Tom McAllister, CFP™
For the past four years, I have been able to fulfill one of my life goals by becoming a "snowbird", wintering in Southwest Florida. When I first arrived in December of 2005, the residential real estate boom here was just ending. I saw the signs, pointing them out to my readers and to the new friends I was making in the quiet, small city of Englewood (located 30 miles south of Sarasota on the Gulf of Mexico). It has been interesting to observe what has happened as the bubble burst. The area went from full employment and runaway optimism to near-depression.
My friends include snowbirds like myself, retirees, and others who are still employed or seeking employment. I sense a "bottom", although things are still very tough for those in the work force. Residential real estate sales activity is picking up, due primarily to lenders facing reality and offering "short sales" on foreclosed properties. (A short sale in the real estate business is one where the lending institution "takes a hit" and offers a foreclosed property for sale at a price lower than its outstanding mortgage.)
There is mortgage money available for qualified borrowers who intend to reside or winter in these properties. Generally a down payment of at least 20% is required; 50% down payments and all-cash sales are not unusual. The banks are still running scared, with regulators leaning on them to clean up their bad credit loans and to make only high quality loans. (This, by the way, is in contrast to Congress and the Administration, who are urging lenders to resume lending aggressively.
The Federal Reserve Board has been flooding the banks with funds since last fall. This action has far more impact than anything likely to come from the newly passed stimulus bill. In fact, it is slowly having an effect as many banks are begin to move back into a lending position.
The heavy write-off of mortgages and mortgage-backed securities continues. Remember, though, these are largely bookkeeping entries, not cash losses. I have been critical of the Bush administration, and now of the Obama administration, for failure to suspend the "mark to the market" rules on these financial instruments. It is important for government to be mindful of the fact that the vast majority of mortgages are still current and will be paid on time and in full. The lack of a market for mortgages and mortgage securities is a temporary problem, I believe, one which will cure itself in time. Indeed, we may be on the slow path to a cure as we speak.
Many observers are lamenting the status of the U.S. dollar. As for me, I am heartened by seeing the dollar strengthen against most other currencies as we begin to "get our financial act together". Buyers are flocking to buy our U.S. government bonds, even at yields of just two percent. These foreign buyers must be expecting that our efforts to salvage our economy will be rewarded with success. When you think about it, where else will these currency buyers go? Except for the Japanese yen, nearly all other currencies are weak against the dollar, reflecting the world-wide economic slump. No other country but ours has the wherewithal to spark an economic revival, which is precisely what we are beginning to do.
Glimmers of light at the end of the tunnel raise my spirits, as I remind myself once more of the old adage about things being darkest just before dawn.
With interest rates at historically low levels, stock prices are at bargain levels, and cash levels at record highs, a turn is coming. And when that time comes, stocks will soar, even as real estate continues its slow recovery.
Stay the course! Don’t panic.
In the long run, our United States of America will survive and prosper!
With all the rapid changes in our economy and in the investment markets, there are many investors who would benefit from more consistent guidance. We are currently accepting new financial planning and investment clients, and would appreciate your referrals.
|
| |
| |
______________________________________________
| |
Click To Print This BLOG
