Great CNBC Article about the Credit Crisis

The headline of this article might hit home...
"Can’t Grasp Credit Crisis? Join the Club"

For those of us who are not financial experts, this article published by CNBC goes over the entire Credit Crisis, A to Z, start to finish. Read the article here.




LK

THE "R" WORD

The following blog post summarizes recent events in the U.S. economy leading up to a recession and reassures that there is remedy at the end of the tunnel.


THE "R" WORD
By Ron Ojeda

OK, the writing is on the wall. It appears 2008 will be a sluggish year for the overall U.S. economy. Last Friday capped off the worst seven trading day start to the new year since 1990 when Saddam Hussein’s army was still getting settled in Kuwait. Economists across the financial industry have shifted their views on the possibility of a recession past the 50% mark and acknowledged it as the more likely outcome going into 2008. The word “Recession” brings up images of closed businesses and unemployment but let’s clarify the definition of recession.

An economy that is in a recession has experienced at least TWO quarters of contraction by measure of the GDP. That’s correct, two. This is not to say it is not serious, especially to those families and individuals who are directly impacted by it. However, maintaining even a medium-term view, 2 to 3 years, allows all of us to focus on the forest instead of the trees.

The recession is being ushered in by three primary factors. The labor market which, as of last week gave us the first empirical evidence of a recession, two quarters of contraction. The January 3rd employment report for December 2007 showed an *” outright decline in private sector payroll jobs and a substantial increase in the unemployment rate. Since World War II any increase in the three month average of the unemployment rate by more than one third of a percentage point has been associated with recession.”

While this seems significant, the more worrisome factor is the apparent weakening of consumer spending. Two thirds of Gross Domestic Product (GDP) is consumer spending and has been watched carefully over the past four years for signs of weakness. Quarter after quarter, year after year, the American consumer has not disappointed analysts and economists. Despite a negative personal savings rate, a deterioration in real wages and increasing personal debt, the consumer has continued to “go to the well”. In the last several years liquidity has been dysfunctionally provided by the rise in the values of their homes and the financial industry’s willingness to allow them to tap into what has historically been an important savings tool for Americans.

Lastly, business activity, from capital expenditures to new hires, could be soft in 2008. The Institute for Supply Management (ISM) monthly index moved well below 50. Anything below 50 suggests slowing activity in the manufacturing sector.

On the positive side there are several factors which should have dampening effect on the length of any possible recession. The Administration has announced a $70 to $100 billion stimulus package, details to come later this week. The biggest caveat in that plan will be the test of legislator’s discipline to not attach all manner of long-term “pork” expenditures to the needed short-term stimulus package lest those long-term commitments provide an inflationary effect on the economy.

Another positive factor will be increased exports because of the continuing saga of the weakening U.S. dollar. With foreign central banks looking to raise their benchmark rates while the U.S. Central Bank is being compelled to cut rates, that trend will most certainly continue. But this cannot be relied upon as a substitution for the U.S. consumer. Despite our perception of their size, three major trade partners, China, Russia and India have combined Gross Domestic Product of only $4.6 Trillion. According to the U.S. Bureau of Labor Standards, consumer spending accounts for 60% of the $13.2 Trillion U.S. economy or $8 Trillion.

Last but not least is the expected continued cuts in rates by the FED. The fact that they are coming is a foregone conclusion. Yesterday’s Producer Price Index (PPI) showed wholesale prices fell 0.1% after a 3.2% surge in November, Today’s Consumer Price Index (CPI) number should convince the Fed that concerns about inflation should be put on the backburner for now and managing the economy through this rough patch should be the priority.

* January 9th, U.S. Daily Financial Market Commentary (Goldman Sachs)

To Catch a Dropping Knife

Two dramatic days in the stock market have been driven by renewed investor confidence.

Yesterday’s 200+ point advance was triggered by a $7.5 billion investment in one of our largest financial institutions, Citigroup. The source of this investment, the Abu Dhabi Investment Authority, generates questions from many philosophical, political and financial fronts, and at the same time encourages investors in both the debt and equity markets that the fundamental value of the US financial sector is still very real regardless of uncertainties in the near term. It also provides confidence that the Fed is not the only white knight out there with deep pockets.

Today’s 300+ point gain in the U.S. stock market was helped by comments made by Vice Chairman of the Federal Reserve Donald Kohn. He told the Council on Foreign Relations “uncertainties” in the markets “require flexible and pragmatic policymaking”. Wall Street interpreted these remarks to mean the Fed will cut rates again at their next meeting.

This is also reflected in the price action of the Fed Funds futures contracts which have long been an indicator of institutional investor sentiment on where short-term interest rates are going. That measure is currently predicting an approximately 80% chance of a Fed easing at the next meeting.

All this positive action in the face of a week of negative economic news:

1) 90% of companies in the S&P 500 have reported earnings and those earnings have shown an 8.5% decline in earnings versus the 3^rd quarter of 2006 in which there was an 11.6% year over year gain. The worst year over year comparison since the 4^th quarter 2001. Yes…2001.

2) The Fed’s Beige Book report out today showed slowing economic growth in October.

3) Orders for durable goods such as cars, computers and appliances fell .5% in October following a revised 1.4% decline for September. This, however, was in line with economic forecasts.

So, now what? The fact is that all those negative numbers are a snapshot in the rearview mirror. The near term future will likely bring more negative news as the Credit Crunch brought about by the Sub-prime debacle plays itself out over the next 12-24 months and individual investors will, as they always have, watch the “big money” to give them direction as to the next move up in the economic cycle. Granted, the best and brightest are a little more tarnished than in the past, but for better or worse they still run the game.

The $7.5 Billion investment in Citigroup by foreign investors is not their effort to “play the stock market.” They are not trying to take an educated risk on the direction of the stock market in the next 6 months. Additionally, these folks are certainly not “day traders”. But, they do know a bargain. An investment in Citigroup is an asset play that spans stocks, bonds and real estate. It may get a little uglier but even they cannot pick a bottom. There's a saying in the investment industry... picking a market bottom "is like catching a dropping knife." Who needs that? One thing is for sure, they would rather be in the game than standing on the sidelines. Can’t make money there… can you?

By: Ron Ojeda, Capital Development, Blue Moon Capital, LLC

Invesco to move HQ to Atlanta

A recent issue of the Atlanta Business Chronicle had an article about Invesco Plc (the global investment firm) relocating its London headquarters to Atlanta. Invesco is a global money manager with $2.41B in annual revenues; this move is projected to bring in 150 jobs. The article states "While heavy on on symbolism, the real benefits of Invesco's headquarters having an Atlanta address will play out in the years ahead."

Invesco is planning to combine its HQ and Atlanta office into one location... the new Two Peachtree Pointe in Midtown Atlanta.

Survey: 65% of IRA holders consider real estate as an investment for retirement

I found this article browsing google the other day and had to share it. It is from the Birmingham Business Journal, quoting a survey conducted by a firm called Guidant Financial Group. Real Estate has been and will continue to be a predictable investment for building wealth for retirement. We will see more and more traditional long-term hold strategies and a new wave of investors looking to rent property out for 5 years at a conservative 4% annual appreciation rate rather than flip a property for 30% profits in what used to be 20 days.

The article:

"Despite a slow national real estate market, a recent survey showed real estate is the No. 1 choice for self-directed investors.

Washington-based Guidant Financial Group conducted a survey of nearly 1,000 self-directed IRA holders and found that nearly 65 percent of the respondents said they were considering property as an investment for their retirement savings.

Nearly 60 percent chose rental property, more than 36 percent chose foreclosures and preforeclosures and more than 28 percent chose raw land.

"These numbers provide valuable insight into the minds of investors," said David Nilssen, president and CEO of Guidant.

"It demonstrates that, although the real estate market is experiencing a downturn, many still continue to view real estate as a secure and viable means to growing their nest egg."

Other choices, according to the survey, included: tax liens and deeds, 29 percent; business/franchise, 22.8 percent; hard money lending, 22 percent; notes, 19.3 percent; vacation property, 19 percent; foreign investments, 10.4 percent; and securities, 7 percent."

Alan Greenspan on 60 Minutes: Housing Market and Economic Forecast

Alan Greenspan was interviewed on CBS's 60 Minutes with an outlook on the US housing market and economic forecast.

Greenspan stated "... we're gonna get through this particular credit crunch... we always do..."

This is a reinforcement that the real estate bubble hasn't burst... it's just taking a well-deserved break.

An innovative vision: Residential Rental Real Estate as an Asset Class (RRRAAC)

Blue Moon Capital is more than a money manager, more than a real estate investment company/wholesaler/hard money lender/reo buyer/ turn-key opportunity provider... Blue Moon is an innovative company with a vision of creating "Residential Rental Real Estate as an Asset Class."

"Well I had always been fond of real estate, and i saw it was an opportunity to do something in the industry that nobody has ever done before... and that is create residential rental real estate as an asset class, which up until today nobody has ever realized that it has the potential that it does today primarily because the industry considers residential rental real estate as cumbersome, awkward, hard to manage but we look at a process whereby we can make it manageable..."

Blue Moon Capital Overview on YouTube