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

Calming Seas in the Credit Markets

It appears that most of the high profile news about the "Credit Crunch" is out there. At least this wave. Lenders have had some time to locate and identify enough of the subprime risk that is either currently in their portfolios, been packaged and sold to investors, or in the pipeline and being processed in order to evaluate and put some measure of quantitative valuation on their risk exposure. Some lenders have already started to add loan products back to their menus and some large lenders have decided to retain the loans in their own portfolios instead of selling them to the secondary market. By doing this they do not take the risk of having to sell the loans at a discount which would result in a loss to them. This also is giving them a competitive advantage over less financially sound banks by allowing them to make loans their financially weaker competitors cannot and consequently taking away market share ..

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

It's a bird... It's a plane... It's... ... Bank of America!

Notable News:
Bank of America to invest $2 bln in Countrywide: WSJ
"NEW YORK (Reuters) - Bank of America Corp plans to invest $2 billion in Countrywide Financial Corp, the mortgage lender that has faced a liquidity crunch this month, the Wall Street Journal said on Wednesday." Source: www.reuters.com