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 QLD, MVV, and UWM.
- Interest rates are coming down, which makes real estate more enticing. This morning, 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.
