Crazy Market!

If you've been paying attention to the stock market, you no doubt notice that it has been absolutely crazy. One day, the world is coming to an end and the next day everything is great. Here is my take on this crazy market.

In 2001, the United States was hit by a double whammy as the dot.com bubble burst and terrorists struck the twin towers. As a result of these two incidents, the stock market took a nose dive. To counteract the financial threat, the FED started aggressively lowering interest rates. The resultant availability of very low cost credit CAUSED the housing bubble. Everyone that could fog a mirror got a loan and bought a house. Many of these people purchased their houses with newly created gimmick loans and no money down. In many cases, these gimmick loans offered extremely low teaser mortgage payments that didn't even cover the interest on the loans. That meant that the principal was going up every month. When the rate adjusted to a normal interest rate, the "homeowner" could no longer afford the payment and they owed more than their house was worth.

Worse yet, during this same time period the manufacturing industry in the United States was shutting down and moving overseas. The United States was rapidly becoming a service economy that was largely dependent on the consumer to keep it afloat. To support their appetite for spending, the consumer would frequently refinance their homes and use the money to buy "stuff".

Today, we are reaching the end of this scenario. In hindsight, it was absolutely crazy to loan money to people who had bad credit. It was also crazy for people to borrow money with these gimmick loans that had interest rates that would reset to levels they couldn't afford. Crazy isn't a strong enough expression for a country that would so punish business with silly laws and taxes that the manufacturing capacity would move overseas. Finally, it is absolutely insane for people to take the equity out of their houses to buy useless junk.

Now, that is all coming to an end. The banks (and their investors) that loaned money so freely the past few years are in real trouble. This has caused a world wide liquidity crunch. Worse yet, the consumer is tapped out and is actually spending more than they earn. It was a great ride, but it is over.

I am expecting a continued decline in the real estate market and a significant recession in the near future. I believe that this could be the worst recession many Americans have ever seen. Millions of people will lose their jobs and the entire world will suffer.

While all of this sounds bad, I also believe that this will be a time when many people will become rich. As new homeowners lose their houses to foreclosure, they will once again become renters. This could be a once in a lifetime opportunity for the those that have vision, to become very wealthy in the rental property business. I know that I am doing everything possible to be properly positioned for the future!