What today's news means and why it contains an explosive opportunity for those with vision

Put The Jujitsu Concept to Work In Your Life

Today's headlines read: Wall Street Meltdown, Lehman Files Bankruptcy, Merrill Lynch Sold to Bank of America, AIG Seeks Cash…

What does it all mean and is there an opportunity for you and I here?

Well, let me ask you if you are familiar with the concept of Jujitsu. In Jujitsu, you use the energy of your opponent's attack on you to your advantage.

The news today is quite bleak. The Jujitsu thing to do is use it to use the "sky is falling" headlines to further your financial goals.

Here are my thoughts on it, in Q&A form, on how you can do that.

What's the deal with Lehman and Merrill Lynch?

The big Wall Street investment banks are basically broke. They owe more than they have. So the US Federal Reserve is trying to arrange shotgun weddings to bail out the investment banks.

What's an investment bank?

An investment bank buys and sells securities for their own account as well as doing brokerage business. A commercial bank takes deposits and lends money.

Who cares? Why does this matter?

It's called derivatives. Derivatives are promises to pay another party if a certain event happens. The banks have so many derivatives that if one bank goes belly up, it could start a chain reaction and all the others could become insolvent. This is called "counter party risk".

Even if your bank is fine, it has to have money of its own on deposit at other banks. Same with your brokerage. So one huge bank seizing up sets off a counter party default problem.

 

Why are there all these problems now?

After the 2000 stock market crash, the US Federal Reserve policy switched to ultra easy money and very low interest rates.

The investment banks and commercial banks responded by making real estate loans especially easy to get.  Down payments were a thing of the past.

People bought properties they could not afford.

Then the marginal buyers started to default. This was the "sub prime" market.

Then credit worthy buyers saw the value of their houses drop. They said, why am I paying on a mortgage that is more than the house is worth?

They started to let their houses go either into foreclosure or through short sale.

Why the Fannie and Freddie bailout?

Fannie Mae and Freddie Mac guarantee about $5 trillion in loans. They were almost broke and the foreign buyers of their bonds said "we aren't going to buy any more bonds. In fact we will sell the bonds we have, unless something is done."

The US Federal Reserve got alarmed that US agency bonds might be dumped by foreigners. So they nationalized Freddie and Fannie.

This week, the Federal Reserve is scared that if investment banks like Merrill Lynch and Lehman default that will spread across the entire financial market and cause it to collapse. So they are doing anything they have to do, to save the Wall Street banks.

What does this mean going forward? What can we expect?

The US government is not big enough to bail out the mortgage market. The US government borrows money from foreigners and depends upon the "kindness of strangers" to continue its business. The war in Iraq costs many billions that the US does not have, and requires a lot of borrowing.

Who else may go under?

Further, FDIC, WaMu, AIG, National City Bank, Suntrust…are all in danger of failing. The US Government's FDIC will run out of money with the next bank failure. Expect 150 or more bank failures over the next few years.

Pretty soon, the US government will not be able to bail out anyone else. The more bailouts there are, the longer this mortgage and debt crisis will continue. The worse it will get before it gets better.

Is money in the bank safe?

Yes and no. Up to $100,000 cash in commercial bank insured accounts is safe. In the longer run, the value of any savings is plummeting due to the effects of inflation.

Doesn't real estate go up with high inflation?

The value of real estate depends upon getting financing. Financing is drying up for real estate. So real estate prices are falling and will fall some more.

What about mortgage rates?

They have fallen since the Fannie and Freddie takeover but they may not stay down for long. The US Federal Reserve controls short term interest rates. Long term rates are set by the market. Even short term rates are really not set by the Fed, but are really market determined because the Fed must react to the market.

And the real issue is that although rates may fall, mortgages are harder to get. So fewer buyers qualify. And that means prices will fall still lower.

When will housing start to bottom out?

We haven't even gotten into the recession here in the US that is upon us. Not deep into it anyway. When we do, housing will continue to drop. People will lose jobs in a recession. And they will not be able to afford the high housing prices.

US banks face delinquencies and chargeoffs never before seen in modern times.

How can I make money in this market?

There are many good ways to make a lot of money today.

First, what not to do. Don't buy real estate right now for speculation unless you can do it with virtually no risk.

Renting out a property makes sense if you have a positive cash flow.

You can also tie up a short sale property through a purchase agreement and then negotiate with the lenders for a certain price, say $200,000. Then do a 9 Day House Sale and get $225,000 for it. Do a back to back closing, and you've made $25,000 as close to risk free as you ever will discover.

If you are a real estate agent, you can learn the 9 Day House Sale and learn how to negotiate short sales and make a fortune because your competitors are mostly asleep at the wheel. You now have motivated sellers who don't care how much you get for their property, and you have motivated lenders. Just make sure that any buyer you find is qualified with a significant down payment, good credit, and a situation that lets them be patient while you negotiate the short sale.

There are so many deals around that you could do a deal every weekend and make yourself a fortune.

As property values plummet, you will be in a position to scoop up some rare bargains. Bargains that cash flow for you and that pay you to hold onto them.

Today's news represents a huge opportunity. There has never been a better time to make big money in real estate but it isn't in the way most people think it is.

This Wall Street stuff means that there will be more inflation and more opportunity due to the falling market than ever before. Be a contrarian and be happy about it while everyone else is freaking out.

Click here to get your 365 day trial of Mortgage Relief Formula

warmly, 

 

 

P.S. The opportunity here is to put the bad news to work for you. The news can motivate people around you to let you buy their house, or work out a loan mod for them. There has never been a better time to try out my material for a full 365 days. At the old price (at least as of the time of this writing…the price may have gone up when you read this.)

Click here to get your 365 day trial of Mortgage Relief Formula

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 Charts courtesy of ContraryInvestor.com. I do not give legal, investment or accounting advice. Do not rely upon anything you read here to make investment decisions. I am not responsible for the accuracy of what I write and please check things out for yourself.