Real Estate News

A crystal ball would be handy here. While nobody knows exactly when the current correction will stabilize, there are a few fundamentals to watch.

Real estate is still a regional game. The prices, fluctuations, and sales data vary widely by demographics, employment, and infrastructure. There are several large economic factors which sway markets. They are worth watching and are in no particular order.

1. Absorption. There is an excess of inventory in many markets. With thousands of unsold homes by builders and many homeowners wanting to sell, there is more supply than demand. The result is that prices will not appreciate so long as supply exceeds demand. Watch the days on market for homes for sale and builder inventory.

2. Financing. In the last 5-7 years we saw lending institutions lose their professionalism. With the country awash in money, 110% mortgages created irrational exhuberance that has now helped to create the largest foreclosure market since the great depression. The correction in the financial markets is a very complicated issue and has amplified the housing crisis. Interest rates are one indicator. But, the resale of loans into the secondary market is equally important.

3. Employment. If people are out of work, they can’t qualify for a loan. This key statistic drives commercial real estate AND residential and is easy to monitor.

4. Infrastructure. If the community and government provide basic services and maintain roads, airports, and utiliities, then business tends to stick around. When the local and regional governments feel the pinch, businesses look elsewhere to run their shops.

5. Permits. Many builders know all of this information and then some. If permits for new construction increase, that may be a sign that the turnaround is coming. A decline in permits means that we are still on the backside of the boom-bust curve.

All in all, many pundits are saying that the housing market won’t stabilize for 2-3 years. There are permanent changes in our economy that make that prediction even fuzzier. We have survived wars, inflation, and recessions before. We have never had an accelerated energy cost spike like this before. Gas prices affect everything and many economists don’t see those prices retreating very much any time soon, if ever.

Today’s comment is by Erika Nolan, Founding Publisher and Managing Director of The Sovereign Society.Imagine waking up on a sunny Saturday morning to find you can’t use your debit card to buy groceries or pay for gas any longer? You can’t withdraw a single dollar from the ATM. And your bank froze your credit cards. Then you discover that every check you wrote in the past week has bounced. And, you receive a call saying that your retirement assets are frozen. The kicker is that you had over US$1 million dollars in your account. You try to call your bank for answers, but they won’t help you. I know this story sounds like I’ve pulled it right out of the Great Depression. I’ve got news for you…this story is very real. It all happened last month to a US$2.1 BILLION bank in a little community in

Bentonville, Arkansas.

How a Bank “Suddenly” Goes Under
in the 21st Century

It was a very organized attack. On May 9th, the accountants snuck in the back door that Friday night after 5:00pm once the bank’s doors had closed. Little did anyone know the doors were closing for good…And under the cover of darkness, over a hundred FDIC accountants began to systematically dismantle ANB financial headquarters - the venerable US$2.1 Billion institution that had been in business just hours before. In short, FDIC officials were there to pick up the pieces because ANB was about to become the third bank to FAIL here in the

United States in just the last six months. The fourth-largest bank in

Arkansas was about to become yet another sub-prime casualty that choked on their own bad loans and investments.

The unlucky customers of ANB received nothing more than a letter that stated nothing of the bank failure, but rather introduced the “new” bank - Pulaski Bank. Yet, I am sure most customers figured out their bank had gone south long before the formal letter arrived. As of 5:01 PM on May 9th, every single account at ANB was frozen. Money market accounts to trust assets to basic checking accounts…

What FDIC Insurance Really Means
If Your Bank Goes Under

When you hear your account is “FDIC insured,” do you really know what it means? In short, it means the Federal Deposit Insurance Corp. will reimburse you for up to US$100,000 for any one account you hold in your name. If you have a joint account, then both account holders are insured up to US$100,000. You also can secure US$100,000 for each beneficiary in certain accounts (payable on death). (For full FDIC rules see FDIC’s Guide to Deposit Insurance Coverage.) Does this insurance help? Absolutely. But when you have an account worth more than US$100,000…well, that’s how you can lose money if your bank goes under.Also, these days most respectable businesses make well over US$100,000 a year, so that limit is fairly easy to reach. And when accountants poured over ANB’s books, they discovered 647 accounts that exceeded that limit. That equaled US$39.2 million in uninsured funds.FDIC representatives, who I believe must hate their jobs on a regular basis, had to call these unfortunate account holders and tell them what they lost. One ANB client lost US$1.4 million. Overnight. With no warning. And as for the rest…well historically, uninsured deposits recoup 65 cents on the dollar. Plus, it can take years to get your money back. A shocked ANB client said to me: “It’s like [your money] doesn’t belong to you anymore…it’s theirs.”

Make Sure this Doesn’t Happen to You

As we’ve often said over the last 10 years in this business, you can protect yourself from such massive faults in the

U.S. banking system. And one of the easiest ways to do that is to spread out your wealth across several accounts - just in case a bank goes insolvent like ANB did.

Another valuable option is to diversify by moving a portion of your wealth offshore. By banking offshore, you gain an extra layer of protection because historically, offshore private banks have a higher liquidity than domestic banks. And in places like Switzerland and

Austria, banks have stayed solvent for hundreds of years.

Jack Pugsley, a hard money advocate and our Chairman, has a few suggestions about how to protect yourself from the next banking calamity including:1. Check out your bank’s credit rating. Check out the collateral backing up the loan. In the case of banks, you can do this by getting regular credit reports on any U.S. bank from Veribanc.2. Understand the rules, so you know what you’re getting into. You can check out FDIC rules to find out what types of accounts are covered and how much. Click here for the rules.3. If you decide to bank offshore, treat your offshore banker like a domestic banker. Check their credit rating and collateral. Sound foreign banks also protect against the possibility of the U.S. government declaring a bank holiday, or freezing bank deposits, as

Roosevelt did in 1933. It could happen if economic conditions get really bad. Other countries (like

Argentina) have done this more recently. So choose the strongest currencies and countries.4. Above all, keep in mind that bank deposits are loans in a currency. Right now,

U.S. banks are paying less than the inflation rate for deposits, and the interest is taxable. So depositors are losing purchasing power, and if price inflation heats up, which it will, the losses could be substantial.5. Diversify, diversify, diversify…between banks, between currencies, between countries, and between assets (loans, equities, tangibles).Above all, look at a bank deposit for what it is, a loan to the bank. Treat the banker like you would treat anyone who asks you for a loan. You want to know whether the borrower will be able to repay you if he gets into trouble.You never want to wake up one day and find yourself without a bank. But if it happens, a few precautions can help you protect what’s yours. ERIKA NOLAN, Managing Director There are right ways and wrong ways to bank offshore. For tips on where to go, check out my recommended reading list on www.dougcrowe.com, or send and email to doug@springboardcorp.com.

How would you like to be a billionaire? It’s easy. Just move to Zimbabwe. This country’s entire population of over 12,000,000 are billionaires. In fact, many are trillionaires, or even quadrillionaires.

However, be careful what you wish for. As citizens of Zimbabwe have discovered, these riches are a curse rather than a blessing.

Let me explain. The minimum wage in Zimbabwe last month was Z$3.9 billion, and the average workers monthly salary was a magnificent Z$15 billion. Unfortunately for the worker and his family, his whole monthly Z$15 billion dollar paycheck wasn’t quite enough to buy a bar of soap. In fact, it takes Z$10 billion to make a single U.S. dollar as of this week.

That was last week. Prices are even higher today.

You Have to Be a Quadrillionaire to Afford a House

If you think eggs and cookies are dear, real estate transactions are carried out in quadrillions (in case you’re unfamiliar with “quadrillions,” a quadrillion is a million billion, or a 1 followed by 15 zeroes).

Houses in the less desirable, high-density neighborhoods are going for Z$1-3 quadrillion, while houses in better neighborhoods will set you back up to Z$20 quadrillion. But get you bid in now — prices are going up. These numbers are real, and the people have no power to change it.

Zimbabwe’s stock market has historically been a refuge for investors during periods of inflation. But recently stock prices also have soared. The Zimbabwe Stock Exchange industrial index leapt to a new high above 900 billion points last week, from just over 1.2 billion points in January.

That’s what happens during hyperinflation. The Zimbabwean experience is not a new phenomenon. Ever since the invention of paper money, the excesses of politicians and bankers have led to hyperinflation in dozens of countries.

Personal Currency Collection Shows the Horror of Hyperinflation

An associate of mine has a small collection of paper currencies from other countries that achieved this distinction. One piece is a large, beautifully-engraved German 100-mark note from 1910. When issued it was the equivalent of US$25, or roughly 1.25 ounces of gold.

As World War One progressed, the German government began expanding the money supply to pay for the war. By 1920, 100 marks would buy only US$1, or 1/20th of an ounce of gold.

At war’s end, the Germans had to pay war debts, so the money presses began rolling day and night. The government devalued the currency so much that it reached 9,000 marks to the dollar in January 1923. Then just six months later, it was 100,000 marks to the dollar. Then by August of that same year the exchange rate was an astounding 4.62 million marks to the dollar.

My collection contains a piece of German currency printed in September 1923. The September version of the mark was no longer the large, engraved, and very beautiful paper. By then, the German currency was half the size of the current U.S. dollar. It was printed on cheap paper on one side only, and carries the legend, Twanzig Millionen Mark, or 20 million marks.

That 20-million mark note wouldn’t buy a single bite of bread. By the end of the hyperinflation a loaf of bread cost 580 billion marks. And so it goes in Zimbabwe today. A loaf of bread, which cost about Z$15 million two months ago, last week cost about Z$600 million.

Celebrating Hyperinflation’s 132nd Anniversary Here in the U.S.

This year marked the 132nd anniversary of the beginning of hyperinflation right here in the United States.

Faced with the problem of funding the struggling Continental army in 1776, the “United Colonies” decided to issue currency to pay the troops. The notes were called “Continentals.” In my paper currency collection, I also have one of those notes. At the time, Americans started saying “not worth a Continental” instead “worthless.”

Price inflation has existed for thousands of years. It’s been present in every society advanced enough to use a general medium of exchange. And it’s universally feared.

To observe inflation throughout history, you would think it is a blight of nature, like earthquakes, hurricanes and the common cold. Each time inflation strikes a nation, it’s denounced, reviled, and cursed by citizens, economists, and politicians alike. Yet despite the fact that policymakers have fought it for centuries, price inflation survives untouched.

Once again, inflation is rising again around the world, and once again the United States is in the thick of it.

On Wednesday the Federal Reserve Board met to address the nation’s current economic malaise. Once again, Chairman Bernanke announced that he wouldn’t be lowering rates (that is, printing more money) this time.

“Although the downside risks to growth remain,” his statement said. “They appear to have diminished somewhat, and the upside risks to inflation and inflation expectations have increased.”

Good rhetoric, but I’m afraid it’s too late. The world is already awash in fiat dollars, and more are on the way for the same reason that Zimbabwe’s central bank keeps printing Zimbabwean dollars.

Where Does Hyperinflation Come From?

Johns Hopkins University economics professor Steve H. Hanke, in a research paper published last week about the Zimbabwean hyperinflation explained it:

“The source of Zimbabwe’s hyperinflation is the Reserve Bank of Zimbabwe’s money machine. The government spends, and the RBZ finances the spending by printing money. The RBZ has no ability in practice to resist the government’s demands for cash.”

It is no different in the U.S. The government borrows, and the Fed finances the borrowing by printing money. Like the Reserve Bank of Zimbabwe, the Federal Reserve has no real ability to resist the government’s demand for loans.

The late Nobel Laureate economist Friedrich von Hayek stated it bluntly more than 30 years ago in his essay, Denationalization of Money:

“Since the function of government in issuing money is no longer one of merely certifying the weight and fineness of a certain piece of metal, but involves a deliberate determination of the quantity of money to be issued, governments …, it can be said without qualifications, have incessantly and everywhere abused their trust to defraud the people.” [Emphasis added.]

So, be cautious as you dream of becoming a billionaire. With the help of central bankers, you may just get your wish. Don’t rely on their intelligence or knowledge of economic history to protect you, either.

Central banks are not the solution. Central banks are the instruments that defraud everyday consumers like you. Nor does it matter which candidate gets elected in November. Government spending will continue to increase, as will the central bank’s need to inflate the currency. To understand more about international currencies and the risks of paper-money inflation I encourage you to join The Sovereign Society.

Note: The piece above was written by John Pugsley, Chairman of the Sovereign Society and best selling author.

Looking for a safety valve for your money?

Would you like to know how the super rich defend themselves against the fraud of paper-money inflation?

Land rarely de-values and there are rock-solid methods for insuring that YOUR property never goes down. For methods on insuring that it goes UP, we encourage you to contact us. Yes, the U.S. real estate market has seen a correction. That slide of values probably isn’t over yet. However, smart money and REAL billionaires continue to invest, they just don’t put all their investments in one market. It is a world economy and the smart money is going to the Caribbean. For details on how you can ride on the coat tails of the super-rich, send an email to doug@springboardcorp.com.