Sorry to Say "I Told You So"

San Fernando Valley Business Journal – December 24, 2007

GUEST COLUMN
By Bruce Weide

I saw Jason Schaff at the 50 Fastest Growing event last month, and he just about turned white when he looked my way, like he’d just seen a dead man walking! I haven’t written for the Journal in over a year and Jason thought he might need to start checking the obituary pages for my name.

Well, it’s certainly not for any lack of financial and economic news I haven’t written, that’s for sure. Come on – the tanking real estate market, the credit crunch, volatile stock markets, weak dollar, taxes getting even surer to climb despite all the smoke and mirrors adjusting the AMT downward. What a turbulent year for me to be sitting on the sidelines keeping my mouth shut!

Believe me, it wasn’t easy for me to sit silent. But I have had two excuses. One - good year for business. I’m an advisor to my clients first and a big mouth editorialist second.

The second excuse relates to the first indirectly. And that is, I already told you so! Why should I say it all again and again?

Back in early 2006 I kept screaming “It’s over! End of real estate boom.” Seems like no genius now, but back then I suggested some rather serious medicine be taken to preserve home equity values, even if that was still early enough for the majority to wait and see. And all that’s been going on newsworthy since that time is exactly what I said would happen. That big sucking sound!

So what’s your home equity look like today? Had enough? Well, sorry to remind you that the worst may be yet to come. Consider that in 2008 about half a trillion dollars' worth of Option ARMs are due to reset to a higher mortgage rate as their two-year teaser rate period comes to an end. (Good thing that my opinions don’t necessarily reflect those of the SFVBJ. Please keep buying the Journal, real estate brokers.)

Last year, I quoted John R. Talbott, visiting scholar at UCLA’s Anderson School of Management, in his book Sell Now, The End of the Housing Bubble, (2006 St. Martin’s Griffins) when he wrote:

…you need to know that today’s high housing prices are an abnormal bubble about to burst…”

Talbott nailed it when he demonstrated in his book that outrageously low interest rates combined with obscenely easy credit had falsely inflated the housing markets, and it was coming to an end in a big way.

What I didn’t tell you about then is when he also said:

It is not fair to say that the current boom [2000-2005]will fully reverse itself, but is accurate to say that if it does not, it will be the first time in a century tat a boom in real prices actually stuck. (Note: Talbott has removed relative inflationary increases from the equation.)

But personally I don’t really even care about investment losses and gains and strategies in the short run. What I DO care about is this, and it is no small concern: There are 78 million Baby Boomers heading into retirement soon enough, and the average 401K balance is about $50,000! Sure, you guys have done better, but that means that a lot of Boomers have done worse! And the ONLY wealth they have fortuitously accumulated over recent years is (was) the equity in their home! Bye-bye.

My point is that the worst part of the real estate crash is that what little shot at a comfortable retirement a lot of the working class may have accumulated despite themselves, it’s now on the final run to vaporize right in front of their eyes, and they don’t even know it.

But the good news, (I know you’re ready to strangle me by now. I bet I had you going) yes, the GOOD news, is that in the coming years CASH WILL BE KING. And will there ever be a Buyer’s Market in real estate! Yes, you want to buy, but you also need to be prepared to hold for at least a decade for some real appreciation.

If homeowners were only to cash out now, (you don’t need to sell your house to do that. See The Last Chance Millionaire by Douglas Andrew, 2007 Warner Books) and preserve what equity they have left, they’ll need to keep that equity in a conservative “purse” that grows slightly better than the cost of the mortgage.

But that’s the trick. Now you’re talking inflation, weak dollar, unstable markets, and Uncle Sam’s increasing cut. I guess I need to write more next issue. I’ll tell you how to duck those problems, too.

I'm Back From the Dead!

CRIME: Don't you ever start a blog and then let it slumber! It makes you look very un-blogger like, undedicated, and dilettante. How can you possibly be taken seriously?

HOW DO I PLEAD?: Guilty as charged. I throw myself on the mercy of the Courts of Bloggerdom. In fact, may I add for Holy Blogger Father to forgive me...for it has also been over a year since my last communion with the San Fernando Valley Business Journal, writing any editorials.

WHAT DO YOU HAVE TO SAY FOR YOURSELF BEFORE SENTENCING? Well, gee...uh, glad you asked.

Excuuuusse meee, but I do run a legitimate business, you know! And unfortunately, or fortunately, the last bit of PR, writing, and promoting I had done, along with launching my radio show with Chuck Gebert, Straight Talk Real Estate, (KRLA 870AM, Sundays 6:00pm) has just kept me swamped with simply caring for my own clients. You know, the unglamorous stuff like crunching numbers and designing strategic financial plans. (Not really, it's actually fun working in the mad laboratory of financial planning, as nerdy as that may sound.)

And I'm not writing again now because business is slow, either. But - manna from Heaven- I have a new Marketing Director, Eric, who is taking half of my duties away from me and handling all of our promotion and public relations. Eric just points me in a direction now and says "Write", "Speak to the audience", ""Go to the studio", "Roll over", "Play dead", "Write me a paycheck".

But I have to tell you - Man, have I been SO YEARNING to have written you. SO MUCH has been going on since I was last keeping this blog.

• Stock market booms and crashes
  
• Tanking credit market
  
• Tanking real estate
  
• Weak dollar
  
• High oil
  
• Inflation or no inflation on the loom?
• Taxes almost sure to climb with the next political administration and over the coming decades
  

Don't think I haven't brought a stack of news articles into the office to post to our website
news section. (That's also way behind on being kept up to date.) But believe me, I read the same things you read, and the same things keep me up at night as do you. I believe, though, that I do have the advantage of being in a profession where I can spend the time to study these developments, study what financial strategies are being promoted, and tear them apart a bit.

So that's what I want to do for you in the coming weeks and months with this blog. With my plate a little less loaded, and with Eric's prodding, I want to see if I can't break down many of these events for you and the fear they generate, and perhaps point you in a direction of some shelter from the storm in the coming years.

Essentially, my business focuses on risk management.

On December 8th in Glendale, we're holding a seminar in my office entitled

The NEW RULES OF HOME EQUITY and INVESTING IN UNCERTAIN TIMES

In it we'll cover:

· How to Lock-In Your Home Equity Values NOW in a declining Real Estate Market

· How to enjoy the portfolio growth of the stock market when it rises, and guarantee against loss in down years.

· How to exploit the ebb and flow of capital between real estate and the stock market, without ever having to time the markets.

· How to ensure you get the best potential gains out of Asia, Europe or America, without having to “bet on the horse” until the race is over!

· How to guarantee 140% of the S&P 500 growth annually in your portfolio.

· How to make it all tax-free, and ignore the tax hatchet sure to come in the next 10-20 years.

In my blog, I'll start to actually break down these bullet points one at a time, and give you some preview and hopefully generate some discussion, of what we cover in the seminar. Your readership and your contribution will be great appreciated.