Pasadena Speech Sheds Some Light – Is the Worst Over for Real Estate?
“Then the Gods of the Market tumbled, and their smooth-tongued wizards Withdrew, And the hearts of the Meanest were humbled and began to believe It was true That All is not Gold that Glitters, and Two and Two make Four And the Gods of the Copybook Headings limped up to explain it once more.”– Rudyard Kipling, 1919 – From The Dollar Crisis, Richard Duncan
Even when people already have their own opinion, they still like to ask me what I think is happening in the market. In some areas, things are still looking pretty stable and will probably remain so, AND I think there are good reasons to prepare for more unexpected financial events, and cultivate a sense of flexibility.
Steven Romick, a prominent and well-respected fund manager, recently gave a speech to the Value Investing Congress in Pasadena, CA that rocked the solid optimism portrayed by a stock market that not too long ago broke through 13,000 (it’s been retreating in uncertainty over the last couple of days).
Here’s a pretty smart guy feeling more than a little cautious in how he invests his client’s money. Here are a few excerpts from his speech:
“More than two decades of easy money, combined with a deteriorating savings rate that is now negative, magnified by leverage and lax oversight has created our current predicament – the Housing Bubble and Subprime defaults are just two of the symptoms.
As a result, we now expect a deleveraging across all types of domestic lenders, with many international companies similarly impacted and that a global credit crisis is in its early stages. Less capital and greater regulatory oversight will impact both lenders and borrowers – a combination that can only negatively impact economic growth.”
This is a good place to interject something . . . if the mortgage industry isn’t going to rebound with flying colors, and things do happen to get worse before they get better, then folks, we have to start paying attention to other ways of putting real estate transactions together.
Cash is only one way. There are dozens more, so when you need to sell, think of the benefits you would like instead of the cash or cash-to-new-loan rut that we’ve all been in. There is trading, joining forces in a land trust, and my favorite, the installment sale: seller financing, seller carry back, carrying paper. The note can then be held, sold or traded/exchanged for some benefit wanted.
“Eventually, we will have to repay our debts and the best way to do so is to inflate, that is, use cheaper dollars for repayment. We already believe that inflation is greater than the headline Consumer Price Index number today unless, of course, you don’t drive, eat, or require healthcare – so if you are really skinny, healthy and don’t care about getting out of the house, you’ll be fine. We expect this trend to continue into the immediate future, with higher interest rates as just one potential result.”
- I want to carry paper, please help me create a valuable note.
- If I Carry Paper, How Much Will I Get Each Month?
- How Much Will You Pay for My Note?