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This Is Scary...


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Army - Don't sweat this stuff man, it's a fear-factoring sales pitch. Do I think what he is saying is completely off-base? No, not really. But do I think he's saying anything that isn't being said already, in wide-open converstations around the financial globe? NO. This website is nothing but a "get rich quick" scheme at play. How do I know? Because I have Sirrus Sat in my car, and in the mornings I listen to Bloomberg radio during my commute. There is an ad running now about the "end of america" that gives a website to visit "not you website". Last week, out of curiousity, I went to the website to see for myself. Practically the exact same set-up of the website you're posting here. The text is even nearly word-for-word the same. Even the part about "I have rejected calls to run for public office"....just so I could be a good american and save you all by sharing my secret with you, for free, for only $19.95 plus s&h (which we all know is where the profit is). This is all b/s. Don't sweat it amigo!

Having that said - do we have a looming financial problem on the horizon in this country? Yes, and it's called the national debt. Numerous economic factor simply went of the chart in 2008-2009. The real data is frightening at first, if you don't try and take a bigger picture view. So much data out there about Treasury bond out of whack, debt ceilings, interest rate curves inverted, etc... It's been a very difficult and very frightening 36 months in not only this country, but the world. And that's just the economical side of the house. It's too early for me to go into an Iran rant... but you know I can, in true style!

Are we going to face inflation in the next few years? Yes, is my very strong guess. Is that a bad thing (remember, big picture view here)? No, infact I'm of the belief that it needs to happen to finish the "resetting" of the economic engine. Key interest rates of 0% don't earn money for anyone, especially when that 0% is used to fund a government body that seems to have lost their minds at the ATM machine, also known as the US Treasury Office, in my opinion. When you have a government who continues to compete with the private sector that it says it supports...then you are on a train that will miss quite a few stops of prosperity. It is, just that simple. And inflation will be the "brakes" of the train.

That being said thing I think we all need to keep in mind, which is something that never gets mentioned in all the "expert" opinions.. Loss Reserves... Everyone is so focused on the losses in the banking sector, that they're simply forgetting about the Trillion or two dollars, real dollars, real cash, sitting in real vaults, used to cushion these "loss" positions. The term "loss" is not a definitive definition in the financial world. For instance, a $100,000 home loan on the books of a bank. When that loan was written, the home had a value of $110K. If the bank had held that loan for it's entire term, then that bank would be known as a "portfolio lender", which is what I am in the commercial real estate world. Portfolio lenders get to skirt a "rule" in accounting, called Mark-To-Market. This rule, in it's simplist definition, values things as the "moment". Banks and other institutions who, instead of keeping the loan on the books, decide to sell the loan into what is called a MBS (Mortgage Backed Security), which ends up on wall street, Fannie/Freddie, your retirement account, etc.. How? Because once this MBS is created (nothing but a pool of loans with monthly mortgage payments that end up in one bucket for distribution) then wall street issues these things called "securities". Securities function much in the same manner as you being a day-trader in your underwear at 2am in the morning selling stocks/bonds/options on your lap top. Securities give the general public instant and mostly unrestricted access to all things "securitized". Once this level of "power" is given, then "mark-to-market" accounting comes into play. This is the accounting rule that allows you to make, or lose, money on your trades. How does this impact the bank who technically sold the loan off it's books? Well, in that purchase & sales contract to sell the loan, the bank has to sign this little disclosure agreement that says "if you lied, you have to buy the loan back from me". Well, that language was so "general", that defining "lied" became a guessing game. When the market tanked a few years ago, mark-to-market became subjected to "perception" of value. When one home on a block had to sell at a discount, no matter reason (say maybe there was no loan on it, and the owners died, and the kids just wanted to sell it right away), that one sale ended up killing 250 "perceived" values. You can see the snowball effect of that. Remember that disclosure agreement? Well wall street came back to the bank and said "what a minute, you said this thing was worth $110k, it just sold for $80k, I want my money", and the bank had to fork it over. It snowballed, and a calculation was created during the big "test" last year that required banks to start setting aside money for instances just as I described. These loss reserves also are there to protect the "book value" of those lenders who keep the loan as well. It does not look good on the balance sheet when you have a loan outstanding with a $100k amount, on something that has a perceived value of $80k. The difference is made up with cash set aside.

This little discussed fact about the banking community, represents trillions of dollars that can't be touched. They can't be touched due to two primary reasons...(1) an accounting rule, (2) a perceived value. Two things that can and will change. All congress has to do is tweak that Loss Reserve calculation just a little, and instantly free-up billions of dollars back into the economic flow. Values will also return.

So, when the "doom and gloom" guys all cut n' paste the same paragraphs, just remember, there is a huge nest egg sitting on the sidelines, that can be accessed if needed. In my opinion though, we're MUCH better off with that money locked away, and not flowing through the economy. What I am hoping happens, is these funds simply get absorbed back by the Fed, and retired. Reducing the amount of dollar bills floating around the world, makes the dollar more valuable, which brings down the costs of capitalism that we all live by (bye, buy).

However - one of the best times to buy real estate as an investment, is during periods of inflatoin and high interest rates. Why? simple - those times reduce the amount of buying power in the economy, which makes real estate harder to buy for more people. That kills values. You buy a house when interst rates are 10% for 100K, knowing that interest rates are more than likely to go down again (it's a cycle, they always do), and you wait for the 6% money to hit the market. When it's at 6%, you know there is a bubble starting to occur, because it makes what was once thought of un-reachable for the 98% of the general public, reachable.....aka...many buyers. More buyers...more options to sell...more you can sell it for. It is exactly what happened over the past 8 years. The problem though, is nobody was watching the shop, they were too busy drinking the KoolAide out back, and didn't realize that "Suits" from Wall Street were in their cash registers swapping dollars with funny-money. That, won't happen again for another 15 years...when memories fail to remember this period in time. IT ALWAYS HAPPENS!

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