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Author Topic: Now we'll all see just how connected Wall St is to Main St.  (Read 31558 times)

Offline propertymanager

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Re: Now we'll all see just how connected Wall St is to Main St.
« Reply #30 on: September 30, 2008, 05:28:35 pm »
Quote
That money NO LONGER EXSISTS.

C'mon now - you're making my head hurt.  You know as well as I that the money didn't disappear.  For everyone that sold yesterday, another person bought.  That money isn't gone, it just changed hands.  Moreover, while the prices yesterday were actual trades, anyone that held their stocks over the past two days hasn't lost a penny.  They won't lose anything unless they sell.  In fact, if they hold one more day and the market is up tomorrow, they might even make a profit (if they sell, of course).

Mike
www.1MinuteToRentalPropertyRichs.com 
This No-Hype, No-Nonsense Book is a step by step course in making money and building wealth with rental properties!  Everything from buying properties at a discount to dealing with terrible tenants.  Now In Paperback!

Offline fdjake

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Re: Now we'll all see just how connected Wall St is to Main St.
« Reply #31 on: September 30, 2008, 08:32:43 pm »
Mike,

Those sales yesterday were at HUGE volumes and they were REAL. 

Where do you think all the money went that was in Lehman, Bear Stearns, AIG, Wachovia, ect.
These stocks were in the $20's and higher 3 MONTHS AGO!!! Now they are basically worthless.  MILLIONS of people bought those stocks when they were in the $50's!!!!!!!!!!!!!!!!!!!  I let you tell them their money isn't GONE.

Where's all the money that was spent on homes that were purchased at $300,000 in 2005 and now are foreclosed and selling for $150,000???  Those people didn't sell.  The MARKET valued those homes in 2008.
Where's that money Mike???

AGAIN........THAT MONEY IS GONE.  Just like that $1.2 TRILLION is gone!!!
If I buy one of those $300,000 homes for $150,000 today.  I don't get that EXTRA $150K that has VANISHED into thin air.  What happens Mike if I buy that house for $150K and NEXT year it's worth $85K.  Where did THAT money go???  What happens if for some reason our economy is 10 times worse than it is now and I need to sell that $85K house for $50K.....Where did that $35K go???

Let's look at Home Depot.....that stock was $80/share 6 years ago.  It's now in the $20's......Are you trying to tell me people who bought that stock at $80 haven't lost money???  Let me tell you...THEY ARE THE LUCKY ONES!!!!  Because if anyone was dumb enough to ride that DOG from $80 to $20 HOPING that HOLDING it FOREVER would get then EVEN....

THEY LOST!!!!!!!!!!!!  Because they are HOLDING something they paid 4 times it's current value for.
« Last Edit: September 30, 2008, 08:39:56 pm by fdjake »

Offline Liquidity

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Re: Now we'll all see just how connected Wall St is to Main St.
« Reply #32 on: September 30, 2008, 09:01:30 pm »
Mike

stock values and appraised home values are 2 different things. You  know that.  I think what your trying to really say is that the stock market is over valued. maybe a little, maybe a 1000 points now. but wait until next year 2 qtr and it will be more in line with reality. 

the market went up today almost 500pts -yes but the government caused that crash yesterday. that wasnt the free markets at work i'll tell you that much. It was pure PANIC. Today cooler heads realized this is the time to buy again and that bill will be signed.

The government rejecting that bill was pearl harbor on the stock market yesterday.

thats the best explanation i can give for it. everyone thought it would pass and it SHOULD !!!!

Offline propertymanager

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Re: Now we'll all see just how connected Wall St is to Main St.
« Reply #33 on: September 30, 2008, 09:10:02 pm »
Quote
Those sales yesterday were at HUGE volumes and they were REAL.


We're just talking semantics here.  If your claiming that the market lost 1.1 Trillion dollars yesterday, then it gained back 690 BILLION DOLLARS today.  Did individuals and individual companies lose money yesterday?  Yes, just like every other day.  Did individuals and individual companies make money yesterday?  Yes, just like every other day.

Quote
Where's all the money that was spent on homes that were purchased at $300,000 in 2005 and now are foreclosed and selling for $150,000???  Those people didn't sell.  The MARKET valued those homes in 2008.
 

Yes, those homeowners lost money because their houses sold, albeit not because they chose to sell.  They bought at $300K and sold at $150K, even though it was through a foreclosure sale.    

I bought a $52,000 house about 3 years ago for $20,000 (including rehab).  Just for argument sake, let's say that it is worth $45,000 today.  Have I lost $7,000?  No, my net worth at this moment decreased by $7,000 (from 3 years ago) but I haven't realized any loss because I haven't sold the property.  

If a California investor paid $200,000 for a house in 1999 and it had a market value of $500,000 in 2005, has he lost any money if the value today is $300,000?  No.  He hasn't lost a penny if he hasn't sold the property.  Even if he did sell the property at $300,000, my old fashioned math would say that he still made $100,000, not lost $200,000.

Quote
I think what your trying to really say is that the stock market is over valued.

Yes, I did say that directly.  In fact, I think the market is WAY TOO HIGH for being on the verge of a depression....or is the market priced right and the great depression is just a scam?

Mike

www.1MinuteToRentalPropertyRichs.com 
This No-Hype, No-Nonsense Book is a step by step course in making money and building wealth with rental properties!  Everything from buying properties at a discount to dealing with terrible tenants.  Now In Paperback!

Offline Liquidity

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Re: Now we'll all see just how connected Wall St is to Main St.
« Reply #34 on: September 30, 2008, 09:28:17 pm »
A great depression needs a trigger. and this could be the trigger.

If it was not a possible trigger, the fed would have taken care of it by themselves.

Offline Dave T

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Re: Now we'll all see just how connected Wall St is to Main St.
« Reply #35 on: September 30, 2008, 09:46:04 pm »

That Trillion is GONE buddy.  Those prices quoted on that big board ain't people THINKING about selling.......They are stocks that have SOLD!!! 

That money NO LONGER EXSISTS. 


Jake,

Obviously you are a smart guy with expertise I don't have.  My primary investment vehicle is rental property, not the stock market.  However, I am intrigued by this discussion. 

Perhaps you can clarify a couple of points for me.  If the drop in the dow represented a $1.1 trillion loss, isn't the loss to market capitalization?  We don't really know whether the owners of the stock that was sold actually lost money, do we?  If they did lose money, how do we know that the amount of their realized losses are anywhere close to $1.1 trillion?

« Last Edit: September 30, 2008, 09:51:06 pm by Dave T »

Offline fdjake

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Re: Now we'll all see just how connected Wall St is to Main St.
« Reply #36 on: September 30, 2008, 10:46:40 pm »
Let's say for arguements sake, we just take the word STOCKS right out of this discussion.  Stocks after all are just a representation of a company.

So to make this easier to understand lets make Mike a HUGE car dealer.
Mike has 5000 cars on his lot. He sells cars everyday.  Once he SELLS them they get recorded on a big board.  At that point someone ELSE owns them.  2 weeks ago Mike added up what his 1000 cars were all worth.  Let's say that number was $11 million.  Well as of yesterday nobody wanted Mikes cars.  But Mike sold anyway.  The only way he could get ANYONE to buy them was to DUMP THEM.  Remember that big board???  Mikes been having a tough year....1 year earlier Mike added up what his 5000 cars COST HIM and it was $14 million.  So if Mikes 5000 cars COST HIM $14 million but are now only worth $11 million Mike is hurting.  Now that 14 million is exactly the same as DOW 14,000 and NEW 11 million is the same as DOW 11,000.  See even though Mike has been selling cars all along HE IS STILL LOSING WEALTH.

This is all nice to talk about....but here's what your ALL missing....

THE PSYCOLOGY behind it...  Real Estate IS NOT liquid.  In reality , with current market conditions and lending,  I'll go one further and say that  Real Estate is actually IL-LIQUID.  There's a whole BUNCH of people out there who would LOVE to sell their real estate BUT CAN'T....... The point your missing is....With STOCKS you NEVER face that problem and there in lies the rub.
When you want OUT of a stock.....you click that ENTER button a BOOM your OUT.  THAT is what causes HUGE drops in values in a one day periods.  Oh that money is REALLY GONE.....It's NO JOKE.   Sure there are always people on the other side of the trade........BUT.....Those people could own those stocks THINKING they've made a great deal only to see that money VANISH the NEXT day.

So how do you keep track of such a fluid market?????

You TRACK DAILY PRICES!!!!  When those prices NOSE DIVE people are heading for the doors.

Hey if it truely was a ZERO sum game,  NO ONE ever really make or lose any money.  What was all the fuss about 1929.  You can't make the arguement that THAT MONEY REALLY WASN'T LOST because the INVERSE would also be true....then NO MONEY is actually ever MADE. 

There is a GIGANTIC segment of this economy who are realizing that their money has VANISHED.  These are the people Mike has said will be retiring soon and draining Social Security......Mike.... these people are going to be doing everything BUT retiring.  They'll be WORKING until they drop dead behing their Home Depot cash registers because their 401k's took a beating and Social Security IS NOT going to pay them enough to live on.  Ask those people if that $1.2 trillion is REAL MONEY????

Mike.....you know I have a TON of respect for you.  I think you wrote THE BEST BOOK ever written on the rental business, and you consistantly give excellent real world advice here.  The bottom line here is...WHO THE HELL KNOWS how this turns out???  I sure don't.....I'll give it my best educated guess, but in the end that's all it is....a guess.  Either way...you'll still be in business and so will I, and in times like this...... THAT alone is an acomplishment!!!
« Last Edit: September 30, 2008, 11:15:45 pm by fdjake »

Offline stevie-o

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Re: Now we'll all see just how connected Wall St is to Main St.
« Reply #37 on: September 30, 2008, 11:31:14 pm »
What happens if JP Morgan assumed wrong on their potential losses with WaMu's portfolio?

http://quicktake.morningstar.com/Stocknet/san.aspx?id=254457

Imagine that bailout.....they've been buying everything.
« Last Edit: September 30, 2008, 11:37:49 pm by stevie-o »

Offline rookieNYC

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Re: Now we'll all see just how connected Wall St is to Main St.
« Reply #38 on: October 01, 2008, 06:37:21 am »
I came to this forum as a RE student and as many know my profession is in the equity markets (option strategist)..Without being longwinded (I will leave that up to the very knowledgeable FDjake)..Comparing RE and equity markets is useless..These discussions  I have addressed many times *years* ago here..RE is not a *liquid* asset..You can own millions worth of RE now and basically it's worth whatever someone will *offer* you for it..Am I holding investment RE now?..You bet..Am I a buyer of investment RE here, you bet..But RE is as far away to being a liquid asset as one can get,right now that is..But equities are truly a liquid asset and when properly diversified can be a much more viable income/investment vehicle..There is a time to be bullish and bearish and I can say now is *NOT* the time to be *overly* bearish..When markets are soaring you get bearish and when markets are collapsing you get bullish..A saying my grandmother told me when I was 17 years (many moons ago) old pretaining to investing in general.."Sell when you can not when  you have to"..Let's not forget Warren Buffet's infamous line.."Be fearful when others are greedy and greedy when others are fearful"..Fear is in the streets and you can bet RE is the last thing someone is thinking of purchasing right about now..

Jack Welch was on CNBC after Buffet made his $5 Billion investment into Goldman Sachs..Mr.Welch went on to say this is what smart people with money do in times like this..Buy quality beaten down companies at discounted prices..

To play into the gloom and doom *NOW* is nothing more than amateur thinking..I didn't hear anyone on this forum complaining when RE and the stock markets were soaring..In fact I would guarantee that many people on this forum contributed largely to the financial mess this country is in..How many mortgage brokers,real estate agents and appraisers are on this forum that pumped overpriced garbage to people they knew couldnt afford it..Only caring if they closed the deal and made their commission...

This is why I have been keeping quiet as of late..I truly hope all those people suffer the most..To those people I say I hope you know how many innocent lives you ruined...Enjoy this prolonged depression *you* have created..

Offline d_sbrown

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Re: Now we'll all see just how connected Wall St is to Main St.
« Reply #39 on: October 01, 2008, 08:42:15 am »
A little perspective that I once was given.

Most of us know that a million is a lot and that a billion is somewhat bigger, and a trillion is somewhat bigger yet:  but think of it this way

If a million dollars was represented by a three foot high stack of 100 dollar bills...

A billion dollar stack would be over 1/2 a mile tall....

A trillion dollar stack would be over 500 miles...

A 700 billion dollar stack would be... oh you can do the math.

DB :anon

Offline p1nn4cl3

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Re: Now we'll all see just how connected Wall St is to Main St.
« Reply #40 on: October 01, 2008, 04:42:14 pm »
Let's say for arguements sake, we just take the word STOCKS right out of this discussion.  Stocks after all are just a representation of a company.

So to make this easier to understand lets make Mike a HUGE car dealer.
Mike has 5000 cars on his lot. He sells cars everyday.  Once he SELLS them they get recorded on a big board.  At that point someone ELSE owns them.  2 weeks ago Mike added up what his 1000 cars were all worth.  Let's say that number was $11 million.  Well as of yesterday nobody wanted Mikes cars.  But Mike sold anyway.  The only way he could get ANYONE to buy them was to DUMP THEM.  Remember that big board???  Mikes been having a tough year....1 year earlier Mike added up what his 5000 cars COST HIM and it was $14 million.  So if Mikes 5000 cars COST HIM $14 million but are now only worth $11 million Mike is hurting.  Now that 14 million is exactly the same as DOW 14,000 and NEW 11 million is the same as DOW 11,000.  See even though Mike has been selling cars all along HE IS STILL LOSING WEALTH.


I actually agree with Mike on this for quite a few reasons:

1) What happens when you pump $700 billion of artificial money into an economy? All that extra cash goes into the pockets of the banks, they lend to the people, the people get an influx of money that shouldn't be there, they are able to may more for less, prices rise, and your dollar becomes worth less. Did you notice that the dollar rebounded 13% against the Euro yesterday? That's because artificial prices are deflating, and a single dollar is able regain some of its purchasing power. A $700 billion bailout is just making things worse. What we are doing is causing inflation, and it's eating away at the savings of everyone regardless of how they've invested. What should be a sharp market correction that fixes itself over a year, will now get prolonged into 5+ years of economic slowdown.

2) Banks are holding "illiquid" assets, but what does that really mean? All that's going on is the market has determined the prices of these assets to be too high. If banks would lower the price on these assets or dump them, savvy investors would buy them, so illiquid is just a relation of price. The problem is these banks don't have enough capital to cover those losses. Those are the banks that deserve to fail. Their first priority should be the safeguard of their customers money. There are plenty of banks that have invested wisely in gold, metals, and other tangible assets that will survive this crash and much worse. Those that deserve to fail should fail.

3) We are asking people who did not forsee this problem to begin with to now play czar of the market and determine the prices of these bad mortgage debts. They are going to take this printed money, and instead of letting the market determine the price of the bad assets, they are going to say, "Here is the price!", and start to purchase. This just props up a system that needs to deflate while inflation eats away at the dollar. Why should the very people who did not see this event happening be given control over determining the market price of bad assets?

4) This will not be the last time banks come back to drink from this well. Once we start down this path where some institutions are just "too big" or too important to fail, they will be back again and again. Banks will continue to take bigger risks than they should, OR we'll need more government to control it. Other industries like auto, energy, medical will also have a case why they deserve government assistance, and that's just not capitalism anymore. I don't know what that is.

5) This "rescue package" is supposed to protect consumer confidence. Ask your neighbor how confident they are. The people I talk to are confident.  They know things are going to get rougher if this doesn't pass. They know they may have to save more, and pull back investments, and tighten their belts. Nonetheless they are ready to do it. They are still ready to invest and borrow wisely. They know that this country did not get to where it is today by the actions of its government, but by the determination of its people. This thing needs to run its course. We need to learn from our mistakes, and a year from now get back to growing our businesses, investing our dollars, and be stronger and smarter for it.
« Last Edit: October 01, 2008, 04:48:15 pm by p1nn4cl3 »

Offline phlemboy

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Re: Now we'll all see just how connected Wall St is to Main St.
« Reply #41 on: October 07, 2008, 11:15:10 am »
Hey guys. Man! I take 10 days off and look at all the subjects I missed. I just read this thread. When it comes to Wall St., I have no clue. But I'm slowly learning.. While stocks are more liquid and you can move money to a more safe location, isn't there a way to preserve RE assets? Is it not possible to pull some money from a property (via refi., equity loan etc..) to be used as a cash reserve to keep your RE business afloat until the economy improves? I realize that lending is tight, but there may be lenders available. What I mean by reserves is that the money taken out is spent ONLY on keeping the cashflow positive. Not on personal or non essential items. If you have the money to keep your debts paid (including the increased debt from a refi), you could "weather the storm" and not have to worry about selling at a loss. When the economy/ business environment improves, you can pay off the loan. This is assuming you have no cash reserves or not enough to keep you afloat. If you have the cash to weather the sorm, you don't need/ want to go that route..
"Fat drunk and stupid is no way to go through life son." --Dean Wermer

Offline propertymanager

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Re: Now we'll all see just how connected Wall St is to Main St.
« Reply #42 on: October 07, 2008, 11:24:34 am »
Quote
Is it not possible to pull some money from a property (via refi., equity loan etc..) to be used as a cash reserve to keep your RE business afloat until the economy improves?

If you have to borrow money to maintain cash flow in your real estate business, YOU'RE IN TROUBLE.  That is exactly why I am always preaching about cash flow and operating expenses.  In fact, at least in my area, the rental business has never been better.  With fewer home buyers and more foreclosures, the rental demand is very high and rents are holding their own.  The worst time in the past 20 years for rentals was during the recent boom, when good renters bought houses and all that was left were criminals and scumbags.  Things have now come back to reality and the pool of renters is a LOT better.

Mike
www.1MinuteToRentalPropertyRichs.com 
This No-Hype, No-Nonsense Book is a step by step course in making money and building wealth with rental properties!  Everything from buying properties at a discount to dealing with terrible tenants.  Now In Paperback!

Offline phlemboy

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Re: Now we'll all see just how connected Wall St is to Main St.
« Reply #43 on: October 07, 2008, 11:48:07 am »
I totally agree with that Mike. It all boils down to having both persoanal & business reserves to help you through the tough times if needed. If you have a stock that's plunging, you may have to sell for a loss if you're afraid of the stock end up being worthless. You have to do something to prevent a loss. In RE, you'll likely benefit if you can afford to hold it long enough. It's hard to believe the value would go to 0. I don't know the process of moving stocks, bonds etc... but I'm sure there's a way to preserve money like the "old money" does.
"Fat drunk and stupid is no way to go through life son." --Dean Wermer

 




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