Tuesday, November 25, 2008

Looking to move $ where? When? How Long?


And what direction is our economy moving?

After years of being concerned about inflation, the Fed is now concerned about deflation. So what exactly is deflation? Deflation is when prices drop, which generally is due to lack of demand, and therefore lack of pricing power. With the economy slowing down, we are hearing economists forecast that we may be in for a deflationary recession. In a deflationary environment, investors flee into fixed instruments like Bonds, because the fixed payment received would actually buy them more goods and services over time as prices decline.

So what does this mean for home loan rates? Remember, home loan rates improve as Bond pricing moves higher - and more demand for Bonds would mean higher prices for Bonds. In the spring of 2003, when Alan Greenspan uttered the "D" word, deflation, Bonds rallied 400bp in just a few weeks, bringing a significant drop in home loan rates. Of course, the economy is different right now, but as more money may be headed towards Bonds in a deflationary environment, we could again see a significant improvement in home loan rates down the road.

On the inflation front, last week's Producer Price Index indicated that wholesale inflation plummeted last month - by the most since records began in 1947 - largely due to declines in energy prices. In addition, the Consumer Price Index showed that inflation at the consumer level fell by a record 1.0%, thanks again to lower costs of energy.

When it comes to the direction the economy is heading, the week did end with some hopeful news. Federal Reserve President Jeffrey Lacker said that an economic recovery could begin in 2009 as low interest rates, low energy prices, and less drag from the housing sector may shore up spending. In the meantime, Bonds and home loan rates spent much of last week trading near a key level of technical support called the 200-Day Moving Average, finally moving and staying above this level on Friday. As a result, Bonds and home loan rates ended the week unchanged to slightly better than where they began.

Secure Rents make investing in Apartment buildings, in the best areas of Los Angeles, a great option if you have the cash. If you do not want to just keep it in cash and want to get in on the Buyers Market we are in. And definitely if you are thinking to hold longer then 5 years, you really will do well in this market.

IMHO Keith L.
Keith @ LambertInc. com

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Tuesday, November 18, 2008

Uncertainty or are we going to go shopping?

- Ancient Greek playwright Sophocles.

Last week was far from quiet as financial markets reacted to several pieces of bad economic news brought throughout the week.

The week began with the news that Circuit City filed for Chapter 11 Bankruptcy, and will be closing 150 stores - and this in advance of the holiday season, when most retailers make a larger portion of their profits for the year. Department store Nordstrom reported its growth rate is down 16%, where they were expecting an increase of 10%. Poor economic reports from Best Buy and Macy's followed a few days later, as well as lower future earnings guidance from Wal-Mart and Intel. As if the headlines of the week weren't enough, Friday's Retail Sales report showed that overall retail sales fell for the fourth straight month and plunged to their worst level since record keeping began in 1992. Looks like a pretty dismal holiday shopping season ahead...probably the worst that retailers will have seen in a long, long time.

In addition, there was bad news for the automobile industry as Deutsche Bank downgraded shares of General Motors from hold to sell, giving a price target of $0...yes, $0. As a result, General Motors stock fell below $3 for the first time since April 13, 1943. Interestingly enough, the automaker was not even making cars at that time but producing only military equipment for WWII.

And the bad news continued on the job front as well, as the Initial Jobless Claims report revealed the highest number of first time unemployment claim since 2001. In addition, Continuing Jobless Claims reached their highest level in 25 years. Remember, poor economic news and a weak labor market usually cause Bonds and home loan rates to improve. This is because fewer jobs and lower confidence about keeping or finding work causes people to spend less. In turn, businesses and retailers lose pricing power, and this is a cycle that keeps inflation - the arch enemy of Bonds and home loan rates - at low levels, especially if oil remains near present reasonable prices.

However, despite all the bad economic news of the week, Bonds and home loan rates were unable to make significant improvements this week

So what do we make of all this? Just look at the big adverts from a very famous local version of "The Donald" with big color adverts in the Sunday LA Times on multiple pages saying "I'm Buying" and looking to make a few big deals while he has cash and most do not.

Yes there is uncertainty. But there is certainly more to be made in the Income Property realm of investing than in today's stock market.

IMHO Keith Lambert

Monday, November 03, 2008

The market just before election time...

- Napoleon Bonaparte.

Taking action after deliberating was exactly what the Fed did last week, when they cut the Fed Funds Rate by .50%, lowering it to 1.00%.

Why did the Fed take action last week, after it had already lowered the Fed Funds Rate by .50% on October 8 in a coordinated effort with other central banks? To continue to help ease the credit crisis, and prevent a long and severe global recession. In fact, several foreign central banks followed the Fed's lead again last week, with Hong Kong cutting their lending rate by .50%, Taiwan cutting by .25%, and Japan cutting by .20%. This is important because cuts by other nations help stabilize the US Dollar, which typically loses ground after our Fed cuts rates, because of the lower yield offered comparatively offered in the US. Another interesting point to note: since oil is Dollar denominated, the price per barrel typically jumps after our Fed cuts rates, because of the decline in the value of the Dollar. The cuts by other central banks should keep oil…and gas prices, in turn…from skyrocketing again.

Another reason the Fed took action: The Fed’s statement discounted threats of inflation, saying that slowing economic growth should lower inflation pressures over time, but added that downside risks to economic growth remain. And last week’s negative Gross Domestic Product reading is confirmation that things have slowed quite a bit. Although experts have speculated that the US may already be in a recession, the first hardcore signs appeared when the Third Quarter Advance GDP report showed that consumer spending declined at the fastest pace in 28 years. The report also reflected the largest quarterly decline since the end of the last recession in 2001.

So what did all of this mean for Bonds and home loan rates last week? After worsening early in the week, Bonds and home loan rates attempted to stabilize by week end. And while it was a treat that Bonds did bounce off an important level of technical support, home loan rates still ended the week nearly .125-.25% worse than where they began.

Very few income properties are on the REO (Real Estate Owned by a bank) lists. Unless you go to areas like Henderson NV or Plamdale or Chula Vista where the rental of units has a very low revenue base. If the rents drop so that you can not make the mortgage... and/or the buyer is unsophisticated (or corrupt)giving a investment property back to the bank is very rare.

Amateur speculation in the single family home rental market is another matter.

Time will tell. Sound Investing in positive cash flowing income properties is what I recommend. Loan rates are good now. But for how much longer?

So to whoever wins the White House tomorrow, may God bless his political advisers with some great insight and clear vision.

Because of the down economy I am making a strong recommendation that you vote NO on any bond item on the ballot tomorrow. We do not have the excess state/county/city revenues to handle more debt now.

My 2 cents.

Keith L.