THE ECONOMY IS BOOMING!

According to the President of the United States of America, we are in outstanding shape economically. We, as a nation, have never been stronger. I don’t know what our fearless leader is smoking but he’s definitely not sharing with the rest of the population. Inflation is running rampant. Has anyone gone to the grocery store lately? In an effort to curb inflation, the Fed raised interest rates. Wow. There goes the hope of home ownership for people on a budget. Not only that, when interest rates increase, asset values (including bonds) decreases putting a strain on the banking system. Is anyone in the government paying attention? It’s Economics 101!

For those of you who are non-accountant types, generally accepted accounting practices require that when an asset loses value, the company must write that asset down to market price. This recognizes losses as they occur rather than leaving an asset over valued on the books. Banks have reported $600+ billion in unrealized bond losses to the Federal Reserve. That’s REPORTED losses. The real number is in the trillions but still no one is paying attention.

Silicon Valley Bank recently was forced to close their doors. They were heavily invested in overpriced government bonds bought using depositor’s funds. Regulators came in as they do to audit and review the bank’s financial reports. Just three days before the bank went bust, the Fed swore to Congress that everything was fine in the financial system.

This isn’t the first time that the government has failed. Look at what happened in 2008 to the housing market. All the indicators were there that the bubble was going to burst. Interest rates were low and anyone who could fog a mirror could get a mortgage. That didn’t mean they could pay that loan back, but the banks loaned them money anyway. Recipe for disaster.

As bleak as things are, there is a silver lining. Hang on to your cash because I believe that the housing bubble that has existed for the last few years is going to burst soon. Depending on the area of the country in which you invest, I believe we are going to see the re-emergence of loan defaults and foreclosures. Short sales are going to become common again.

The best thing about investing in real estate and real estate paper is that there is opportunity in a good market but an even better opportunity in a down market.

Happy Investing!