Three Ways to Benefit From Current Asset Buying Opportunities

We're coming up on an unprecedented, fabulous, multi-asset buying opportunity. Here's why:

• The stock market is undervalued, all sentiment and most technical measures are saying to buy, and some fine companies are on sale. The problem is that it's been this way for the last couple of weeks and has kept plunging, frustrating all the bottom callers.

  Nonetheless, you need to start working your mindset away from how awful it's been,  to the idea that capitulation and despondence are the current stages of the game, and that the next smart move will be to buy. I would focus on analyzing the leveraged index ETFs such as Ultra QQQ ProShares (QLD), Ultra MC400 ProShares (MVV), and ProShares Ultra Russell 2000 (UWM). 

• Interest rates are coming down, which makes real estate more enticing. Yesterday, the Federal Reserve worked in coordination with the European Central Bank and central banks of the U.K., Canada, Sweden, and Switzerland in an emergency rate cut. In the U.S. the amount was another half-point to 1.5%. Eventually, we should see lower rates reflected in mortgages, providing a 30-year at perhaps 5%. You don't want to miss that, either through refinancing your current properties or buying new properties, or both.
• Property prices in parts of the U.S. are getting lower and lower. My personal area of focus, Southern California, is awash in homes that are now worth less than the mortgages on them. I even met a relative who's in that position with negative amortization, meaning that he owes more at the end of each month even after making his payment. He's considering a short sale to the bank.Searches at RealtyTrac show a growing number of properties in foreclosure or already listed at banks as real estate owned [REOs] and available at less than half their last market sale price.

According to the Wall Street Journal:

The relentless slide in home prices has left nearly one in six U.S. homeowners owing more on a mortgage than the home is worth, raising the possibility of a rise in defaults -- the very misfortune that touched off the credit crisis last year.

The result of homeowners being "under water" is more pressure on an economy that is already in a downturn. No longer having equity in their homes makes people feel less rich and thus less inclined to shop at the mall.

And having more homeowners under water is likely to mean more eventual foreclosures, because it is hard for borrowers in financial trouble to refinance or sell their homes and pay off their mortgage if their debt exceeds the home's value. A foreclosed home, in turn, tends to lower the value of other homes in its neighborhood.

• You've heard that it's smart to be fearful when others are greedy and greedy when others are fearful. Get your greedy hat out and get ready.

To recap, there are three things you should be thinking about. They are: 

• How to benefit from an eventual stock market recovery.
• How to benefit from lower interest rates.
• How to benefit from lower real estate prices.

Comments

[John Preston:]

You are kidding....right? Way too much cash in the system....and interest rates are not the problem..at least for housing...

Only way rates go down that far if for unemployment to hit 10%...

2008 Oct 10 08:32 AM

[TRUSSO:]

Good Info. How about international properties, say like Central America.

Thomas
realtyexecutivescentra...

2008 Oct 10 08:33 AM

[HedgeThat:]

Jason I have to disagree.

You need to be greedy when others are fearful, except the problem is the others are still trying to time the market and have cash sitting on the sidelines. The US is entering into a period of stagnant growth + inflation in the horizon, I'm very afraid of inflation since the Federal Reserve and other central banks around the world are injecting tons of liquidity in a capital restrictive environment. This will not translate into stock market gains for the future. Sorry to be all gloom and doom but this is the reality of the environment we're in.

2008 Oct 10 09:29 AM

[lukkyjoe:]

rates may not go down further but do not be surprised if unemployment hits 10%. Experts are already predicting 10% in CA. Only solution is what the general public doe snot want to hear nor the banks. They need to step up the economy by wiping out some consumer debt. Hope Now has a program whereby when they forgive some of your mortgage debt to 90% of your homes current value, they will share in the equity gain but you must qualify using a FHA loan.

2008 Oct 10 07:46 PM