Greenspan Says Fed Could Cut Rates Again - Posted by Mr. C

Posted by Dr. Craig Whisler CA NV on September 12, 2003 at 09:54:02:

At 350 lbs, I don’t think so.

OK, Ok I’'ll strip away the tease an fess up (eventually). Actually I wasn’t going to release this quite yet. Its kind of like the previews to comming attractions at the movies. I use it as a technique to drum up interest. Being a promoter seems to just naturally run in my bloodline. The same mo workd when fishing. Fish approach your bait for a careful examination. They often realize that it is faux food instead of haute cusine and swim away. If you see them coming and start to jerk the lure away from them quickily just as they get close they will chase it and swallow it without a careful examination. People are a lot like that. I wanted to tease you a little longer but I got such a nice e-mail from someone yesterday that I decided to tell just ONE person. Then at the end I was having so much fun I changed my mind and told him he could go ahead and post it. If he doesn’t post it today or tomorrow, I’ll recreate it.

This technique could be put to good use by young and old alike. It would be great for people who are having a hard time saving up that nest egg to do their first Lonnie deal. And Yes it should work for everyone if they do it right. For some folks it might cost as much a $100 a month, but then some folks pay as much a $4 for a hamburger too. For most, $30 a month should do nicely.

Haven’t quite figured out how to do it free, but you can be sure that I am working on it.

Regards, doc

Greenspan Says Fed Could Cut Rates Again - Posted by Mr. C

Posted by Mr. C on July 15, 2003 at 11:22:05:

http://story.news.yahoo.com/news?tmpl=story&ncid=&e=1&u=/ap/20030715/ap_on_bi_ge/greenspan_11


WASHINGTON - The Federal Reserve (news - web sites) stands ready to reduce interest rates even further if necessary to boost the sluggish economy and guard against a destabilizing fall in prices, Federal Reserve Chairman Alan Greenspan (news - web sites) said Tuesday.

In remarks prepared for delivery to Congress, Greenspan said that the Fed was prepared to leave interest rates at low levels “for as long as it takes” ? even though rates are at a 45-year low. The goal would be to get the economy growing at a faster pace, he said.

Greenspan’s comments ? part of the central bank’s twice-yearly report to lawmakers - signaled that the Fed, which has already reduced a key interest rate to the lowest level since 1958, is prepared to cut rates again. This could happen as soon as its next meeting on Aug. 12 if the economy is not showing convincing signs of a post-Iraq (news - web sites) rebound.

The Fed “stands ready to maintain a highly accommodative stance of policy for as long as it takes to achieve a satisfactory economic performance,” Greenspan said in testimony to the House Financial Services Committee.

At its last meeting on June 25, the central bank’s interest rate-setting Federal Open Market Committee (news - web sites) cut the funds rate by a quarter-point to 1 percent. The next day banks reduced their prime rate to 4 percent, the lowest for this benchmark rate for millions of consumer and business loans since 1959.

The central bank had signaled at its May meeting that it was concerned that inflation had fallen to such a low level in this country that there was a danger that the sluggish economy might actually trigger a prolonged bout of deflation. That would be a destabilizing period in which prices are actually falling, something not experienced in the United States since the Great Depression of the 1930s.

Greenspan told House lawmakers on Tuesday that the Fed remained worried about the possibility of deflation, even though he characterized such an outcome as remote. If it occurred, it would threaten extensive damage, he said, especially if the economy were to be hit by any type of shock.

“A very low inflation rate increases the risk that an adverse shock to the economy would be more difficult to counter effectively,” Greenspan said.

The quarter-point reduction in the funds rate last month disappointed many investors on Wall Street, who had been expecting a larger half-point reduction. Some analysts speculated that the Fed might have gone for the smaller rate move in an attempt to conserve the limited amount of rate cuts it had remaining.

Some economists said the Fed would want to stop well short of 0 percent on the funds rate, possibly cutting no further than 0.5 percent or 0.75 percent, because of the need to leave money market mutual funds with enough of a margin to meet expenses and still pay a return to their investors.

However, in his testimony Tuesday, Greenspan debunked that view, saying that financial firms had demonstrated “considerable flexibility” in the past in finding ways to make a profit even at low interest rates.

“With the target funds rate at 1 percent, substantial further conventional easings could be implemented if the FOMC judged such policy actions warranted,” he said.

Greenspan said that he and other members of the FOMC discussed at some length at the June meeting the possibility of using “alternatives” for influencing interest rates beyond the Fed’s conventional lever of adjusting the federal funds rate. Greenspan said that Fed policy-makers had concluded that it was “unlikely” that these methods, such as buying longer-term securities, would have to be used.

Greenspan presented the committee with the Fed’s latest economic forecasting, predicting that the economy would grow this year in a range of 2.5 percent to 2.75 percent. That represented a significant cut from the Fed’s Febraury forecast, when it had predicted growth this year would be a faster rate of between 3.25 percent to 3.5 percent.

The economy, weighed down early in the year by falling consumer and business confidence reflecting worries about the Iraq war, has shown disappointing growth so far in 2003. The sluggish growth pushed the unemployment rate to a nine-year high of 6.4 percent in June.

Greenspan in his testimony noted a number of promising developments that the economy should post stronger growth in the second half of his year, including the fall in interest rates and President Bush (news - web sites)'s latest round of tax cuts.

For 2004, the Fed predicted a significant rebound in economic growth to 3.75 percent to 4.75 percent, a rate that the Fed said could bring the unemployment down to as low as 5.5 percent by the end of the year.

Greenspan emphasized that the central bank was prepared to leave interest rates low for as long as necessary to achieve this optimstic forecast because of a belief that the threat of deflation, not inflation, was the biggest concern at the moment.

“Policy accommodation aimed at raising the growth of output, boosting the utilization of resources and warding off unwelcome disinflation can be maintained for a considerable period without ultimately stoking inflation pressures,” Greenspan said.

Yes, BUT… - Posted by Dr. Craig Whisler CA NV

Posted by Dr. Craig Whisler CA NV on July 18, 2003 at 18:48:59:

…you need to take into consideration that Greenspan also has political agendas as well as financial ones.

He can’t shout DELATION without causing havoc in our economy, any more than we can shout FIRE in a crowded theater without causing a general panic.

Greenspan doesn’t shout anyway. He hints. He has been hinting of deflation while appearintg to say everything is ok, in order not to cause a panic that COULD cause a depression and certainly upset President Bush’s reelection.

I am glad to finally discover that soemone else listens to our Fed chairman to try to determine how his hints will affect our mobile home and real estate investments.

I tried talking about Grenspan and the strong possibility of deflation on this board about 8-9 months ago and was greeted by a loud silence. Noone wanted to believe that deflation could be possible. Mostly younger folks I guess, or really ancient ones with bad memories (like me).

Maybe deflation is already here and the government & Greenspan fear to use the D word so they have concocteded a scheme to conceal the truth from us until after the next presidential election???

Look folks, it is common knowlege that we are already in a deflationaly spiral in SOME SECTORS. Like commodities for example, (enery excepted). We still have STRONG inflation in our housing market (because of Greenspans’ recent lowering of interbank overnight interest rates. By CLEVERLY selecting the mix of products that the government includes in their inflation watch index, the government can make the numbers say anything they want. By combining commodities AND real estate, the Fed can (honestly–if you can call that honest) say that they have inflation under control and that we shouldn’t worry about deflation. Greenspan is worried $hitless about deflation. If there if no delfation why do you suppose gold is up (opposite of the norm) and our dollar is down (way down).

Deflation is already here and is fairly likely to stay. Many store prices are lower now than a year ago. Many stores are having to deeply discount merchandise to move it. Even the car mfgrs. are having to resort to gimicks, money back, and zero interest loans to move their wares. Our economy is in deep trouble. It is just a hair’s breath away from catastrophy. Yes that means a depression is POSSIBLE. Will that affect your mobile home investments in any way?

Things should be fine until after the next presidential election. The party in power tries its best to pump up the economy in the year before the year elections. The reason is that if everyone is working and making money they tend to vote Republican. This is one of the (political agenda reasons) that Greenspan is lowering the interest rate—to pump up our economy so the Republicans (us) will carry the day in 04.

Greenspan and company (Bush) is resorting to a lot of deficit spending to pump up the economy. Historically big deficit spending promotes inflation.

I expect strong deflation of many commodities and mild inflation of real estate AFTER the next election if a depression doesn’t occur. Maybe stagflation will return with a vengence. A seroious depression IS possible. My sugestion is to Borrow long and loan short. Pay of credit card debt and/or convert it to long term, low interest, real estate debt, that will be tax deductible. Remember if a depression occurs the interest rates should drop far and fast (they are now ZERO in Japan and have been for several years) and you will likely be able to replace 6% loans with 1% loans if needed.

You can STILL make good money in real estate investing during periods of DEFLATION. Sure, new stratigies and some out-of-the-box thinking will be the order of the day but don’t give up on real estate as long as our population is growing.

Mr. C, I hope someone is listening to you besides just me. I know that a lot of our youngins won’t think it is important until they are HAPPY to find a crust of stale bread along the railroad tracks, like my father once did. If a depression occurs again, it will likely be a very long one. Take care.

Regards, doc

Regards, doc

Re: Yes, BUT… - Posted by James Mc (IL)

Posted by James Mc (IL) on July 21, 2003 at 03:46:04:

Pretty deep.

Maybe you could publish your own newsleter or website.

US has serious issues.

james mc

Re: Yes, BUT… - Posted by larrynohio

Posted by larrynohio on July 19, 2003 at 22:17:32:

Hello Doc,
I scan CREOnline everyday for comentary on the future of my investments. Please elaborate more on your estimates of how we can manipulate the rough times I see ahead.
Thanks
Larry

Re: Yes, BUT… - Posted by Philip

Posted by Philip on July 18, 2003 at 22:22:34:

Deflation really is better not talked about…just addressed by the powers that be. It would be so easy to start deflation, by, like you said, saying “deflation!” in the media.

People road an inflated stock market to unreasonable heights and that happened once before…if my dad tells his stories right.

No one my age likes to think they may have to plant a garden and work for nothing to make ends meet…but sure, it could happen.

Re: Yes, BUT… - Posted by Dr. Craig Whisler CA NV

Posted by Dr. Craig Whisler CA NV on September 04, 2003 at 23:27:04:

No short term loans. No balloon payments. No blanket mortgages. Stay solvent. Live on less than you earn and have some cash available (more than normally). Sleep well, you’ll be well covered by the above.

When (not if) the real estate bubble burts it won’t be nearly as bad as the recent stockmarket decline. The 2 primary reasons are that people don’t pay 50 to 100 times annual earnings for houses, as they did for stock, and after a real estate crash nearly as many people will need a place to live in as before. Its just that unemployment will cause some foreclosures and if intrests rated rise sharply more rentals won’t earn enough to service debt. This will depress selling prices even more than the foreclossures. Lenders will be unloading foreclosures onto the market. This will depress values. Remember you probably have until midyear '05 (7 months after the next election). I would reccomend that you have at least 5%-10% of your net worth in cash & or gold.

There are ALWAYS bargains galore after a real estate dip. You will need some cash to work with. Good credit will be a major help. Don’t worry. A real estate crash will be a wonderful time for prudent investors. Be prudent. Reduce debt in relation to income and save up some cash.

Sorry about the delay in answering you.

Regards, doc

It’s just a matter of time … - Posted by Sonia (ID)

Posted by Sonia (ID) on September 12, 2003 at 01:32:45:

At least according to my economist husband. Our economy is WAY over extended. So ‘could’ is not the word. It’s a matter of ‘when’.

Re: Yes, BUT… - Posted by eb

Posted by eb on September 08, 2003 at 03:29:41:

I also think as you that we are up a creek w/o a paddle and greenie and cronies are pulling the proverbial wool over the eyes of america.

I have been telling anyone I know to be in gold and do you think anyone listens? they all seem to be interested but not a one makes a move. the dollar has risen but is falling back, gold has near broken out to a new high, it is literally just around the corner imho

i will be impressed if they can keep it together before the next election but news items fill the day. now its the california election recall, kobe bryant, whatever, anything to keep the eye off the true culprit.

DOC, please expand on your comment on “No short term loans.” do you mean don’t do 3-4yr LONI deals? I’m not sure what you meant by that.

I like the way you think…

Re: It’s just a matter of time … - Posted by Philip

Posted by Philip on September 12, 2003 at 08:00:35:

I don’t know enough to really comment on all this except to say gold is up and deflation is real in some areas and with some products.
Next there will be some real estate bubbles that burst in California and the Northeast, but not everywhere…like my area where prices are low and haven’t inflated very much.
Also, if there is another heavy blow from terrorist it could be all it takes to give our economy the little push it needs to fall a ways.
But our nation is not borrowing to speculate in the stock market as heavily as they were in 1929. Plus there are limits on the trading there. With the stock market partly correcting itself BEFORE other bad things happen; I doubt we will have the same catastrophy we had years ago.
But good economics never last forever and people are kidding themselves that don’t read history, live through some history, and learn from it.

Philip

Nobody is ever sure what I mean… - Posted by Dr. Craig Whisler CA NV

Posted by Dr. Craig Whisler CA NV on September 08, 2003 at 11:34:18:

…how can they be when even I am not? I know that at times I don’t write very clearly. I answer posts extemporaneously without any check lists, organization or much proofreading.

I meant just what I said about short term loans. I failed to say however that I was referring to short term junior loans, primarily on your family residence, especially when you have considerable equity. Here is why for example. Say you have a $600k house that you bought 20 years ago for $16.34. You now have $599,983.66 in equity. You are walking down Rodeo Dr. in Hollyood with your 15 year old mistress and she sees a $60k red scarf in a shop window and decides that she can’t live without. You left your wallet back in the car because it is so cumbersome to carry it for long periods of time with 321 credit cards inside. The left Bank of the Los Angeles River is right next door so you drop in for an expresso and caviar while they approve your 60k loan, secured by a second mortgage on your home (make that a 15th mortgage if you live in Hollywood). Next, the unthinkable happens and the real estate bubble is burst by a precocious 9 year old real estate investor from Katmandu. Suddenly the Feds, headed by Janet Reno, who was rehired just to supervise the tank corps, swoops down on your office and launches an investigation of the books at your wholely owned, FHA insurred, mortgage company. They find Aurther Anderson siting behind a desk working furiously with his abbacus, but to no avail. He isn’t able to hide his derring-do quickly enough from the long arm of the law (or lar, depending where you live). Your stock suddenly collapses and you are out of work. No income, no more. Now you can’t pay your $32,000 per month payment on that short term note that you just signed against your house. Your young mistress, who owns the Bank of Los Angeles, forecolses on you, so she can move in, with her 11 old boyfriend.

C eb, its simple. In a real estate downturn, some people will lose their jobs and not be able to pay off their short term loans. Short term loans are the worst because they have such high payments in relation to their principal balances. It is often hard to refinance such loans when the real estate market is in a downturn. Short term loans are responsible for some people losing LARGE amounts of equity.

What is NOT included in my admonition against short term loans? Well, just about everything else. I would still use short term hard money loans, because I usually have no money in such deals (I will have equity though). My experience has shown me that I have such a high cash flow on mobile home lot/combos that I rent in relation to their debt service, especially the ones that I developed myself, that I can have about 70% vacancy before my cash flow turns negative. Besides, I watch my loan constants and use the info obtained therefrom to tell me when to pay off certain loans get those properties free and clear.

You do know about loan constants don’t you?

Also not included in my warning are properties held for flipping because they have very short holding periods before reselling. Who knows when the bubble may burst. It could be years away. Noone can predict exact dates. We just can’t stop doing deals because of fearing the next downturn. We would be out of business 95% of the time if we did that.

The most perniicious of all short term loans are ones containig a balloon payment on a property with lots of equity, where you are dependent on your job to continue making the payments (not rental properties). That usually means your personal residence. If I were in such a situation I would either borrow out all of my equity with a NON-RECOURSE loan or pay off short term loans by refinancing to long term ones at low interest rates, to get more manageable house payments or I’d sell out now for cash and rent for a while. I prefer to have some properties free and clear and others mortgaged to the hilt with non-recourse loans. The middle groung is unsafe. I don’t like to have lots of properties with 50% remaining loan to value ratios.The market value could drop 51% and wipe out years of hard work. Its all or nothing, for safety. Some brave souls might even sell their homes for cash and live in rentals. I now live in a rental. Thats not to say I still don’t own other property. I can have a much higher standard of living for the same amount of monthly payout by renting, at the present time here in California. Besides, I know how and where to rent a real nice place for $30 per month, including utilties. No it doesn’t have bars on the windows. In fact almost anyone can do it anywhere in North America. Why would I want the risk of ownership at a time like this? I worked hard for what little I have. I want to keep it as safe as possible, especially as Lyal so tactfull pointed out I an old enough to have personally witnessed the parting of the Red Sea. I’m too old to take unnecesssary risks.

I hope you picked up on my comment about about being sure you have NON-RECOURSE loans on your personal residence if you might be vulnerable to a sever downtern in the real estate martet. It could mean the difference between financial survival and bankruptcy.

Who can tell us what a non-recourse loan is, how to get them and what kind of properties they might be available for?

Five, four, three, two, one, GO. Put on your thinking caps… there is no free lunch.

Regards, doc

Well now, don’t tease me, doc … - Posted by Sonia (ID)

Posted by Sonia (ID) on September 12, 2003 at 01:25:45:

At least give me a clue–how and where does one find a ‘nice place to rent’ for $30 a month!!!

Thanks,
Sonia

P.S. And thanks for the loads of other great info you’ve given this newbie to investigate!