1,000 Banks to Fail In Next Two Years: Bank CEO

As I have reported in past blogs, many of the recognized “experts” in our government are expressing positive attitudes about our economic recovery.  Henry Paulson himself even stated recently that he feels our banking system is “sound”.  Now I’m not a gloom and doom pessimist but I am a realist and I believe it is important for us all to look at this issue in just a bit more depth.

I think you will all agree that the giants in the financial services sector are being “propped up” by the federal government and this makes the picture look a bit rosier then it really is.  In addition, what is happening with the thousands of financial institutions that are not part of the government “bail-out” program?

There was an interesting article last week in CNBC.com by Natalie Erlich that reported on a prediction by a bank CEO that over 1000 banks will likely fail in the next two years.  Of course, for the most part, these will all be small private banks – the type of banks that most small business owners depend on!  This will only exacerbate the problems for these small business owners, many of which will go out of business because of it.

You also need to understand that as these small business owners go out of business they will not be added to the unemployment roles because the Department of labor doesn’t account for the self employed in their unemployment calculations.  Hmmm! Now, you say, doesn’t that create a bit of a false picture of true unemployment?  Yes it does and as long as unemployment stays high, consumer spending (70% of our GDP) will stay low.  Not a good formula for recovery!

Anyway, these are just some of the many problems that I feel will keep us bouncing along at the bottom of our economy for some time to come.  I hope I am wrong but the evidence doesn’t seem to be pointing me in a different direction – yet!  And with our national budget deficit projected to hit over $1.7  TRILLION in  2009, I don’t hold out much hope for a change in direction any time soon.

Tsunami of Home Foreclosures to Hit US: Economist

By: Robin Knight
Assistant Web Producer
CNBC

I really like this title “Tsunami”

“A tsunami of home foreclosures is set to hit the US as banks are unable to keep bailing out tenants that can’t afford their rent and struggling home owners show their anger at the financial crisis by giving up on their mortgage, David Karsbøl, chief economist at Saxo Bank, told CNBC.

“I believe we are about to see a tsunami of foreclosures in the US,” Karsbøl said.

“A lot of homes have been held back because if the banks are foreclosing on them they will have to do a writedown on the mortgages they have on their balance (sheets),” he said. “That’s why they have been reluctant to do so,” he added.

There is also a growing anger in the US population about the bailouts and excessive bonuses on Wall Street, according to Karsbøl.

Meanwhile, “the fact that many homeowners are allowed to stay in their houses without paying on their mortgages begs the question: Why should you pay on your mortgage when your neighbor doesn’t?” Karsbøl said.

Karsbøl added that the notion that unemployment in the US is declining is not true because of a sharp fall in the participation rate.

Karsbøl said that the surge in foreclosures should sideswipe any rally in stocks before long.”

I know we have been talking about this next wave for awhile now. “Tsunami is just an excellent metaphor”.

Opportunity, Opportunity, Opportunity.

MORE Banking Fraud (Foreclosure Stats)

Understanding what is really happening with our economy is vitally important for Market Advisors because our current fund is dependent on our ability to find and purchase foreclosure properties at bargain basement prices. If you have followed our blogs and newsletters at all then you will know that we believe there is still a large window of opportunity to find these properties because we know that the foreclosure trend is no where near ending. But, you say, what about the recovery we are starting to see – even Henry Paulson himself has said that US Banking is “Sound” and recovery is eminent. On top of that just look at the stock market – we’re hitting yearly highs and the market has been trending up for weeks now!

Well the bottom line is this recession was ignited by and has been fueled by the mortgage crisis. That crisis has fueled record unemployment and record unemployment will continue to fuel record foreclosures. I read a great blog in “The Market Ticker” this week that puts all of this in perspective in a very understandable way. The blog, by Karl Denninger, is worth checking out. He’s great at cutting through the “layers” of superfluous information and bringing you face-to-face with the facts.

In his blog Denninger refers to a recent release by the Mortgage Bankers Association of their latest updated stats and he summarizes their findings in one sentence: “The combined percentage of loans in foreclosure and at least one payment past due was 13.16 percent on a non-seasonally adjusted basis, the highest ever recorded in the MBA delinquency survey.” Yes, that’s 13.16% of all mortgage loans that are not performing!

How can our US Banking system be truly “Sound” (Paulson’s words) when it is not being forced to take the “marks” (potential losses) on their books that are associated with these delinquencies. Again, in Denninger’s words: “That our banks are not being forced to take the marks associated with these delinquencies is an outrage. It is the cause of the FDIC’s losses, it is the cause of our credit system remaining locked up, and it is the cause of our continued moribund economy, as without a functioning credit system there can be no actual economic recovery.” Hello!!

Denninger goes on to say that the stock market isn’t a good gage of recovery either: “The stock market continues to rally not based on improving economics but based on the federal government and The Federal Reserve continuing to allow institutions to LIE about their financial condition and the expectation that the LIES will be permitted to continue!”

Anyway, you really need to read Denninger’s entire blog – it’s a real eye opener! It will also help you understand why we at Market Advisors are so confident in our ability to continue to find great bargains for our current real estate fund. (Click here for Denninger’s blog)

Home Foreclosures Set Another Record in July

Discover the SOLO (K) PLAN

This Blog is from information I learned and gleaned from the PENSCO Trust Co. Symposium in San Diego. No attempt is made to write my own interpretation. I want you all to have the straight scoop from PENSCO.

Every Self Employed Individual who wants to build up their Retirement Account balances as quickly as possible should open a SOLO (K).

Why you say?

Revamped and dramatically improved by tax rules that took effect in January 2006. The SOLO (K) is a 401(K) plan designed for the self employed , with all the advantages of a ROTH IRA – and then some! The SOLO (K) is a retirement plan for sole proprietors or small business owners with no employees (the exception is your spouse!). It combines salary deferral and profit-sharing components, and allows participants to make after-tax  (ROTH) contributions that grow – and may also be withdrawn – tax free.

Why all the hype?

This unique plan combines the best attributes of the hugely popular 401(K) plan , with the much-coveted tax-free earning capability of the ROTH IRA, which until now, was reserved only for those earning less than the imposed AGI limit

• Contributions – Pre Tax, After Tax, Rollovers and Profit-Sharing
• Tax-deferred and tax free earnings…and no tax on leveraged income property
• No ERISA rules
• Almost unlimited investment options

Want more?

OK then lets get more, how about…

• Larger Contribution Limits
• “ROTH” component grows tax free
• No Income restrictions for ROTH component contributions
• Borrow from the SOLO (K) Plan
• Purchase Leveraged Real Estate …without UDFI or UBIT taxes (exempt)
• Invest in S-Corp Stock…unlike other plans

At Market Advisors we are here to help you understand the benefits of the SOLO (K) Plan. We have a select group of preferred experts that can help you with your questions. Please feel free to contact us.

Home Price Declines Accelerate in Second Quarter

Bloomberg.com published a well researched article last week about current home price declines.  I like the article because it hit a lot of the important and often conflicting points that are being written about with respect to regional home price declines, mortgage rates, and foreclosure or default discounts.  As I’ve said many times, there is a lot of confusion out there with respect to the state of our economy.  Is the recession over or not?  Have we hit the bottom of the Real estate market or not?  When are interest rates going to start going up again?

From our perspective at Market Advisors,  There is still al lot of foreclosure real estate that has not yet been released to the market by financial institutions.  If that inventory is released slowly then there will still be some control on inventory levels.  But how long can these institutions continue to hold inventory that is growing faster then it is being released and is hampering their ability to get their asset ratios back in line.  Along those lines, here is a “guarded” quote from Wells Fargo about excessive inventory: 

“I don’t think we’re at a bottom yet in home prices,” said Scott Anderson, a senior economist at Wells Fargo & Co. in Minneapolis. “There’s also a pretty big shadow supply of houses. People are kind of waiting for the bottom but there’s a pent-up supply out there.”

I like  his terminology “shadow supply”!  We at Market Advisors believe that supply is casting a very large “shadow” right now and for some institutions that shadow could be as large as 75% of their REO inventory.  In other words we will have a lot of inventory to choose from in the coming months and this inventory will continue to drive prices lower in many markets.

So, take a look at this article here and let me know what you think.

Self-Directed IRA a Good Bet?

Excellent Article by Marcia Duffy of Bankrate.com….

“If you recently watched your individual retirement account or 401(k) drop by double digits, you may wonder if there is a better way to sock away money in an uncertain economy.”

“What if you could replace some of your investments with tax-deferred holdings not tied to the troubles on Wall Street? Maybe you’d prefer to invest in cattle in Wyoming, a gas station in Philadelphia or an underwater cemetery in Miami.”

“Impossible — or even illegal — you say? Not so, according to the Internal Revenue Service tax code. Self-directed alternative IRAs, which are more widely known for their ability to fund real estate, can also be used for private equity investments, such as limited liability corporations, private stock offerings, leases and lease options, and joint ventures.”

“Al Horrigan, 66, of Sarasota, Fla., is one of PENSCO Trust’s clients. He started investing in alternative private equities and real estate in 2000. He first dabbled in day trading with $21,000 from his Roth IRA and turned it into $70,000.”

“With his IRA custodian at his side, Horrigan used the money to purchase 40 acres of land in Nevada, which he flipped three years later for $350,000. He then bought more real estate and Apple stock, which mushroomed to a value of $680,000.”

“Alternative investments have allowed me to continue to do the things I want to do,” he says. “That’s what I call retirement.”

“Eric Gilkesson, 38, of Atlanta, used his self-directed IRA in 2006 to make a total investment of $95,000 in Signature Channels LLC (now Thanks Again LLC), a rewards program company.”

“He says the company is now worth about $10 million.”

At Market Advisors we are advocates and educators for the Self Directed 401K/IRA industry. Our mission is to provide anyone who seeks information about taking control of their financial future with reliable, quality information and resources enabling them to make an informed decision.

If you operate a small business or are self employed you NEED to know about the Solo(K) product for your financial future.

Contact Us we will be pleased to help you.

Read all of Marcia Duffy’s Article

Rental Market Blues

Diana Glick of CNBC recently blogged “Rental Market Reeling” of which the essence of her commentary is the glut of rentals are obviously outstripping rental demand, therefore keeping properties vacant and investors concerned. The main culprit is of course the rising unemployment rate across this country of ours.

I agree with Diana comments, and certainly we at Market Advisors have been educating our audience  for months as to how and why unemployment is the single most important factor  to measure and determine real estate cycles.

However, as the saying goes, “one mans problem is another man’s opportunity”.

The current foreclosure market offers exceptional opportunity to Investors who are able to navigate these treacherous waters. Just because an REO is on the market does not make it an automatic opportunity for investment. At Market Advisors the “rental probability factor” is an important component of our investment matrix.

I invite you to find out more about how we determine investment opportunity for the properties we choose to acquire for our portfolio.

Contact Us

June Unemployment inches up to 9.5% – or is it really 16.5% – what will you give me for 20.6%!

I don’t want this to seem like over-kill but I really believe it is important in light of our last blog.  If you have been following our program at all then you know that we are pretty conservative when it comes to evaluating this market.  You also know that we believe we are on the verge of another large wave of foreclosures that will hit at the end of this year and throughout 2010.  A key driver of that foreclosure wave will be unemployment.  But, you say, unemployment is showing signs of slowing down – is it really? 

That all depends on what numbers you really want to believe.  You see the government has changed the way it calculates unemployment over the years.  It’s really hard to know exactly what part of the unemployed sector is included in the calculations.  For instance the current number does not include “discouraged workers” who are unemployed.  What is a discouraged worker?  It is an unemployed person who has given up looking because they have not found anything for the last 6 months.

If you include that sector which is called the “U-6” measure of unemployment, then the June number of 9.5% jumps to 16.5%!  Also this number does not take into consideration those who have been out of work for longer then six months.  If you include all who have been out for at least 12 months then the June number jumps to 20.6%.   Check out this blog in Investment Watch for more details.

Oh yes, and I forgot to mention that our current numbers only account for those laid off from jobs but does not account for people who have lost work because their own businesses have failed or had to be closed down.

The bottom line is, any way you cut the number, its bad!  And this is a big part of what will fuel this pending foreclosure surge.  That’s why we are buyers in this market – don’t sit and watch it – come join us!

Jobs and Real Estate

I have commented on this topic several times and for those of you who follow Market Advisors you know that we believe that unemployment as an indicator is one of the most important for determining, or predicting real estate values.

So what do the latest numbers tell us?

That the numbers are still negative…meaning that job losses continue to rise. That the positive adjustment to the nation’s unemployment was only due to a revision in May and June numbers. hardly a reason to stand up and cheer.

Plus, take a look at the sectors. Construction shed another 76,000 jobs in July. Now ain’t that a b*?&h.

So from a real estate value prediction perspective….markets are in for more bad news until we see a positive hiring number for construction for one, and a positive number to job growth overall.

Simply put we are not there yet folks…as far as meaningful real estate recovery.

Check out the latest jobs report by sector