The Perfect Storm…the Perfect Opportunity
Thursday, December 11th, 2008
By Michael Lombardi, MBA for Profit Confidential
The storm we are facing in the economy today is as strong as most of us can remember. Companies continue to tighten their operations, job losses continue, and the government tries its best by pouring billions of dollars into the “system” in its effort to halt a deflationary spiral. By the time this is all over, economists will re- rite history changing the worst recession of the post World War II era from the 1974 recession to the 2008-2009 recession.
Next to job losses, foreclosures are a huge problem. According to a report released yesterday by RealtyTrac Inc., one million Americans may lose their homes in 2009. About seven percent of all U.S. home mortgages are 30 days or more delinquent and three percent of all U.S. home mortgages are in the foreclosure process. The worst hit is Las Vegas, where one out of every 61 homes is in foreclosure.
As a long-term investor who has always used the adage “buy low, sell high” to make money, I always find a silver lining during desperate economic times. Yes, I understand it is difficult for my readers to see a light at the end of the tunnel with all the negative economic news we face each passing day. But we must remember great fortunes have been made by going against the herd mentality and buying when everyone is selling and selling when everyone is buying.
Three classic examples: during the Texas oil bust of the mid- 980s, when the Resolution Trust Corporation was set up to get rid of all the real estate savings and loans companies had foreclosed on, real estate fortunes were made by investors who bought from the RTC on the cheap. In the “dot.com boom” era that ended in a bust in 1999, short sellers made a fortune betting against the popular trend of buying tech stocks of companies that had no actual revenues. And, more recently, those smart investors that were out of the stock market by late 2007 have fared quite well, while the majority of other investors have seen their stock portfolios lose 50% of their value since then.
And that brings me to today’s message:
There is no doubt that 2009 will be a terrible year for U.S. foreclosures. The “foreclosure holiday” the banks are on right now (many banks have stopped their foreclosure process until early January 2009) will come to an end.
For investors with the guts to go against the trend, there are some very encouraging trends developing. First, according to RealtyTrac, 259,085 foreclosure notices went out in November – the lowest amount since June 2008. Second, the Dow Jones U.S. Home Construction Index is now at the same level it was in July 2008. Comparatively, the Dow Jones Industrial Average has only recovered to the same trading level it was in mid-October 2008.
For the investors that can see past today’s doom and gloom and go against the popular trend, there are some great deals appearing in the real estate market, both residential and commercial.
Next Post: We’re Not the Only OnesPrevious Post: No Free Lunch in a Bear Market
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
