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Market Crash - Black Monday 8-8-11 Preview - PART TWO

By
Real Estate Appraiser with David V. Farrell Co.

PART THREE WILL WILL BE POSTED AT 12:30 AM E.S.T IF I AM STILL AWAKE - PART ONE IS HERE: http://activerain.com/blogsview/2441310/market-crash-black-monday-8-8-11-preview-to-possible-outcomes-part-one

As explained earlier, we had a rough end of the week last week all stock exchanges.  The only people who didn't feel beaten silly were those invested in gold as even silver prices go hit.  However, to summarize, on Thursday, the Dow 30 dropped 513 points and recovered a mere 61 on Friday.  The NASDAQ dropped 136.68 points on Thursday and continued its fall on Friday dropping 23.98 points.  Basically, the NASDAQ was off 5.97% in two days. 

Today, Israeli opened an hour late, dropped approximately 7%, and closed.

Now, it is 10:45 and the Asian Markets look like this:

Japan - Nikkei Index – 9,178.03 (down 121.85) (-1.31%)

China - Shanghai Index – 2565.38 (down 61.04) (-2.32%)

Hong Kong Hang Seng – 20,178.36 (down 767.78) (-3.67%)

 

Crude Oil - $84.48 (down $2.40 per barrel – 2.76%)

Dow Futures - 11,177 – (down 225) (-1.97%)

S&P 500 Futures – 1172.30 (down 25.50) (-2.12%)

Gold – 1,695.10 (Up $30.70 -  +1.85%)

Silver - $40.06 (Up $1.74 -  +4.54%)

My Apologies for the terrible alignment.  However, to summarize, you are looking good in gold and great in silver.  We are all going to benefit from the drop in crude oil, down to $84 per barrel, when it had been as high as the high $90s only a few weeks ago. 

Otherwise, we have an extremely weak economy with further weakness projected.  We have very high unemployment which is worse than the 9.1 or 9.2% published by the government, as they show fewer and fewer people each period as looking for work.  As such, there are fewer people employed, and more people who have given up even trying to find work.

Stocks are going lower to a point where pensions will not be funded.

Winners in this market are:

1)  Those who have invested in gold and silver or those with the guts to do so soon.  Paper money will become worthless

2)  People who own farmland and/or mixed commercial & residential real estate.  The farmland will be priceless when the cost of food rises rapidly due to the loss of value of the dollar and the explosion in global inflation.  Those with mixed commercial and residential real estate will be able to increase rents to try to keep up with the rate of inflation.  If they have a fixed rate loan, they'll be able to jack their rents (if they are fortunate enough to keep space occupied), while their mortgages dwindle in significance.

3) People in foreclosure or pre-foreclosure able to come to a deal with their bank to re-fi or HAMP or otherwise negotiate a new, 40 year fixed rate loan at 2% on the balance of their loan.  Even better are those who get the bank to agree to put the arrears into a lump sum payment due at the end of 40 years.  In that case, inflation should be hitting double-digits within a few years.  Once it does, mortgage and taxes of $3,000 per month (for example) won't mean too much when gas is $20 per gallon, a loaf of bread is $12 and a gallon of milk is $16.

Losers in this market are:

Pretty much anyone who has worked hard to pay live within their means and work hard for a company that now has decided to lay off tens of thousands of workers.  You will lose your unemployment in 2013, just around the same time that you savings run out, which will coincide with the time when the government decides they can no longer afford to care for people losing their houses. 

It's getting ugly out there.  My suggestions, keep 30% of your money in gold & silver (and cash when you need it for day-to-day use).  Keep 30% of your money in farmland or commercial real estate.  If you already have it, great.  If not, shop for foreclosed properties near to home.  Obviously, if you live by the city, stick with commercial real estate.  If you live in a more rural area, buy the farmland.  Finally, keep the last 30% in the highest of all hi-grade corporate bonds, such as Exxon-Mobil, Microsoft, etc.  My suggestion would be to invest in companies that have recently borrowed because rates were at historic lows, even though they didn't need the money. 

What do you do with the last 10% of your money?  Yes, I know that I only accounted for 90%.  Well, I'm figuring you've lost that 10% between the last week and when you'll be able to liquidate your holdings this week. 

A lot of what I am saying is tongue-in-cheek.  However, things are going to get very ugly.

Finally, don't believe anything anyone has to say who has a vested interest in the outcome of what you do, or in what they are saying.  For example, don't believe stock brokers who come on the market and say the market is probably at a bottom.  Don't believe Realtors saying "Now is a Great Time to Buy" unless they (we - I am one) can prove it.  (Sorry, I am one, but when the NAR has the gall to have their national advertising campaign tell people it's a great time to buy during the worst decade in history to buy, learn your lesson.  Believe in yourself and your own research.


Read "The Great Depression" and other books about hard times.  Remember the 1970s if your old enough and ask about them if you aren't.  Then, picture life twice as hard as in the 70s, and, I hope, not quite as hard as during the Great Depression.  Also, don't let personal possessions become the things that make you happy in life, as they will be more scarce.  Love is free.  A good night's sleep is free (and also known as the poor man's gold).  The beach, a long walk, and other free days should become attractive to you.

Plan in advance.  Last and not least, consider buying a year's worth of canned/stored food.  I might sound like a lunatic, but if you know you can eat for a year, you've got one major aspect of your life covered, no matter how bad things get.  And, these kits generally cost about $1,000 ($3 to 4 per day) and taste great.  They last for 20+ years.  So, if the economy turns around and everything goes great, start using your stored food here and there.

In summary - As Earlier Today, the advice I give is as follows, when asked by customers and clients: 

Sellers - "Things are getting very ugly.  Do you know what the house could sell for next year?  I know this isn't the offer you wanted, but how would you feel if there weren't any other offers for six months" -

Buyers - "Rarely in history will you get a chance to buy a property for a monthly cost so much less than it would otherwise cost to rent.  Mortgage rates are at historic lows and I don't know if they could actually go any lower.  If you plan on staying in the house for more than half a decade, I can't guarantee you'll sell for more, but I can guarantee that you'll be saving a lot of money each month compared to renting."

I tell both groups what I just mentioned because it is the 100% truth in most of our area.

What do you tell your buyers and sellers?  What's your plan if the economy truly collapses?  Are you prepared?

AS I CLOSE THIS BLOG, GOLD HAS JUST HIT $1,700 PER OUNCE - SCARY!

Posted by

________________________________________________________

David V. Farrell, Broker/Owner

Long Island Village Properties

NYS Certified General Appraiser - #46-16371

David V. Farrell Co., Auctioneers & Appraisers

167 Mineola Boulevard

Mineola, New York 11501

p. (516) 741-7350

c. (516) 987-3329

e-mail: david@davidvfarrell.com

Village Properties Logo

 

Comments (10)

Laura Cerrano
Feng Shui Manhattan Long Island - Locust Valley, NY
Certified Feng Shui Expert, Speaker & Researcher

That's why ya can't put all your hopes in that stuff. Get a Roth IRA and ride that thing out :)

Aug 07, 2011 04:40 PM
David Farrell
David V. Farrell Co. - Garden City, NY
Licensed NY State Real Estate Broker

I never put it in in the first place.  I stick with Gold & Silver.  It took 25 years for the market to match its 1929 highs.  Yes, that means it took until 1954 (ten years after WWII) for the stock market to match where it had been in 1929.

Do you have that long to wait.  Do you really trust your government not to re-regulate a ROTH IRA?  Just because you've paid taxes on the money already, don't tell me you truly believe a politician won't figure out a way to take extra taxes from it.  They always find a way.  Try to find something the government hasn't figured a way to tax and tax again.

Aug 07, 2011 04:45 PM
Virginia Hepp - Mesquite NV REALTOR
Desert Gold Realty - Mesquite NV Homes For Sale - Mesquite, NV
Mesquite NV Homes and Neighborhoods - Search MLS

Take my advice. 

Aug 07, 2011 06:59 PM
Mitchell J Hall
Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

Buy Manhattan Real Estate! "They're not making anymore". 

The last time this happened in the stock market, it fueled our market and prices rose dramatically. People take their money out of the stock market and drive it into the ground (real estate) for a safer place to weather this out. This in turn pushes prices up. They do not fall (as many suspect)

 

 

 

Aug 10, 2011 03:46 AM
David Farrell
David V. Farrell Co. - Garden City, NY
Licensed NY State Real Estate Broker

That's pretty humerous.  As an appraiser, broker and auctioneer, I witnessed contracts being cancelled left-and-right.  Also, after the mini-crash of the stock market in 1987, I auctioned off several hundred NYC Co-ops when people all realized that they were paying more than twice as much to own as it cost to rent.  They handed the keys into the bank, walked across the street, and rented an identical unit for a fraction of the cost.

In addition, and yes I have statistical proof of this, from 1988 through 1993, the Manhattan co-op and condo market lost over 10% per year ever one of those years.

Everyone says, "This time it's different."  They generally say so stating that foreign buyers are flooding the market.  I love that one because I always ponder how stupid they believe these foreign buyers to be.  Will a foreign buyer pay more 25% more for one unit in a building when there are dozens of others for sale at lower prices? 

When you say, "took their money out of the stock market', you have to presume they did that before this massive collapse.  What should they buy?  Anything but coops and condos are out of reach to most investors, and actual buildings are a big purchase necessitating management, etc.

I have testified in court as an expert witness explaining that Manhattan has never been immune to downturns.  It is the same as everywhere else, in the long run.  If real estate markets are dipping, Manhattan will fall as well. The only question is when and at what rate and for how long. 

Presently, I woudl estimate that the NYC co-op and condo market needs to fall by a minimum of 50% to be competitive.  The only saving grace is low mortgage rates.  However, they are being offset by inflation causing the price of running the buildings to increase dramatically.  I paid $4.19 per gallon for over 10,000 gallons of oil last winter.  What happes if it is $5 this year?  What about taxes?  NYC needs money and they will get it from real estate owner.  Remember, renters outnumber owners in NYC by a huge majority and, therefore, the owners get hit.

I just read a great quote in the book "S**t my Father Says" where his dad says to the son something along the lines of, "We agreed on fish for dinner, you don't want fish, too bad, isn't democracy a bitch when you are in the minority."  Funny book.

Listen, I hope you are right, but tremendously large Wall Street bonuses keep the market at high levels, and I really don't see too many of those coming 'round the bend.

Aug 10, 2011 07:16 AM
Mitchell J Hall
Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

I was referring to the dotcom tech crash of 2000 but I remember the 80's too. 

I bought my coop (condop new construction) in 1988. In 1993 it was worth 40% maybe 50% less. Buyers in 1993 paid much less than me.  Did I like it 40% less?

Yes, many stupid people walked away. "strategic defaults" Not very strategic in my opinion. Many were sued by lenders 10 years later. It cost them crossing the street. I held on and enjoyed it. I sold it in 2005 to an investor client for 3.5X what I paid. I rented it back from my client. I just sold it again for my client for $75,000 more than I sold it for in 2005 and got him a bigger apartment in the building. 

I recently sold a condo to an investor from China, all cash. Highest price in building post Lehman Bros. The building has 51% of the units owned by sponsor as rentals. FNMA banks won't finance in the building.

Real estate is a long term investment. Markets go in cycles. However I don't agree it is the same as anyplace else. There is no land left in Manhattan. It's not a dessert like las vegas there is no sprawl. It's a world class city and still a bargain for foreign investors compared to other international cities.

I have relatives that just sold their condo in Florida at a loss. They bought it 30 years ago. Any one who bought in Manhattan 30 years ago and sells now will make a lot of money.

Rents are very high and we've been having bidding wars on rentals. Real estate tax is passed on to renters in rent and  NYC has an income tax. 

Here is a qoute I like: 

Could I begin life again, knowing what I now know,... I would buy every foot of land on the island of Manhattan

John Jacob Astor

 

Aug 10, 2011 10:32 AM
David Farrell
David V. Farrell Co. - Garden City, NY
Licensed NY State Real Estate Broker

John Jacob Astor owned a large portion of Manhattan, including the grounds on which Saint Patrick's Cathedral & Rockefeller Center are now built.  In addition, he owned a large portion of the real property by the seaport, though it was all burned during one of the 'great fires' of the early 1800s.  His partner, Cornelius Heeney, of whom I have an original marble bust in my office made from his death mask, broke off his relationship with Astor and moved to Brooklyn.  There, he purchased almost all of what would now be regarded as Brooklyn Heights, Cobble Hill and Carroll Gardens.  I am a trustee on the board of the oldest recognized charity in the State of New York and we control the remainder of the money made from his land ownership over the years.  Donations have been made from his charity every year for more than 150 years.  Heeney himself does not have his name on any part of it as he was an extremely humble man.  He gave the charity its name and left nine men to run it upon his death. 

 

Yes, you are right above the majority of what you say.  However, the "there not making any more of it" comment is about as intelligent a comment as "everyone needs someplace to live."  The former couldn't be more obvious, and the latter does not take into account the fact that people move in with their families when in tough economic times.

Even the brilliant JJ Astor had to foreclose on the Saint Patrick's Cathedral block in an economic downturn long ago.  He took back ownership and then, I believe, eventually donated it to the Church (though I am not 100% on that - he was a pretty profit motivated guy, which was the reason for Heeney's split with him).

I truly believe that you will be very wealthy if you buy any large amount of real estate in Manhattan today and hold it for the next 30+ years.  However, I more firmly believe that you would be much wiser to wait five to ten years and watch the bubble burst, and buy at $.50 on today's $1.00.  I would guarantee, even more so after today, that prices will drop significantly in all five boroughs for a minimum of five years, and more likely ten.  The only reason I would be at all compelled to buy any real estate today (other than very rural farmland for safety/end of the world scenarios) is that I could get a 4% mortgage.  If I bought something (let's make the math easy) for $1,000,000 today and had an interest only loan at 4%, it would cost me $40,000 per year.  However, if I bought it a few years down the road, when the trillions of dollars Bernake & Co. have printed start causing double digit inflation, I might be worse off.  Maybe the property would fall to being worth $600,000.  However, if interest rates eventually hit 10%, I'd be paying $60,000 a year.  So, if I planned to keep the property for a very, very, very long time, it is conceivable that I would buy it with a 30 year loan.

After this week's action, the level of uncertainty about the entire economy is almost infinite.  Chaos would be the best word to define it.  People are worried that if Prez. Obama gets re-elected, the world will end, and they may be right.  On the flip side, no Republican is looking too hot right now.  So, while people say they would vote for anyone against Obama, they actually choose Obama against individual candidates like Bachman, Palin, Pawlenty, etc.

If Michael Bloomberg sel-financed a run for the Presidency, with Ron Paul as either his president or VP, I'd start buying everything in site just knowing that two of the smartest people in the world would be in charge for a while.  Honesty, integrity, and an absence of special interest money would be a dream ticket.  And, both men get things done, solve problems, etc.  Finally, Mike Bloomberg is the exact opposite of Obama insofar as he started with nada and is now a multi-billionaire.  I wish he could be mayor of NY for the next 20 years.  And, you can tell the lefties are getting worried about him because they are already starting to bash him personally for any little thing they can.  They fear what his potential could be when he finishes serving our city for $1 per year.

With the whores in almost every seat in the House of Reps, the Senate, and the White House, we are not going to see improvement for a long, long time.  In fact, I would have trouble thinking of a way that Obama could have harmed our economy any worse than he already has.  His hints of taxes on just about everything (or, for example, the thought of removing the homeowner's mortgage interest and real estate tax deductions) have caused the world economy to freeze.

In the end, I appreciate the fact that you are trying to sell real estate in NYC.  I get it.  But, if you don't deep down believe that the rug is going to be pulled out from investors, then you should start reading more economic history.  Start with "The Great Crash, 1929" by John Kenneth Galbraith.  While published in the mid 50s, it will lead to an understanding that the current administration is literally repeating history.  The New Deal didn't get us out of the depression, World War II did.  Spending money just means every one of us as taxpayers is further in debt.  Right now our "Fair Share" (as Obama like to repeat like a broken record) is almost $50,000 per person.

We are Japan 1987.  We will be back in, well, I don't know when.  They didn't have just a lost decade, they've had a lost 25 years.  That sounds like about how long it will take us to get back on our feet.  However, without a true industrial base, I don't really know how we are going to make money as a nation, when we don't make anything as a nation, other than I-Phones.

Sorry, I know I'm a downer, but to buy NYC real estate now will ruin any middle class person's chances of retiring unless they are under 25 years old.

 

 

Aug 10, 2011 11:45 AM
David Farrell
David V. Farrell Co. - Garden City, NY
Licensed NY State Real Estate Broker

I just hope that the past few days haven't been so bad that they'll require more than 3/4 of our industry to look for other work.  Don't get me wrong, I'd love for 3/4 of all agents to quit, but I wouldn't like the reason why.  It's just like I love the fact that gold is about to slam through $1,800 per ounce.  I just don't like the factors that are causing its rise.

Aug 10, 2011 12:29 PM
Mitchell J Hall
Manhattan, NY
Lic Associate RE Broker - Manhattan & Brooklyn

I'm with you about Mike Bloomberg the best mayor ever. 20 more years is fine with me. I'd vote for him for prez too. The whole power structure of the city changed when a self-made billionaire became Mayor.

The righties don't like him either. He took away all their rights like smoking, the so-called ground zero mosque (amazing how many rightie realtors on this site are against private property rights) and of course his pro-gay marriage. 

He's a fiscal conservative and a social liberal. A pragnatic problem solver. That's my party.

"there not making it anymore" is my sense of humor I was trying to quote Will Rogers .

I actually lost money on gold stocks and spdr gold shares. Bought a couple of years ago the last crash bank bailout. It kept going down so I sold it. We make iPhones that is why I sold the gold stocks and bought Apple.

My office used to be in Times Square up until the beginning of 90's The streets were filled with garment industry workers pushing racks of clothes in the streets.  It was one of NYC biggest industries. Its gone now we have fashion industry but don't make the garments anymore. There are no workers. But I give credit to Bloomberg for bringing in new industries. NYC is now beating silicon valley as the new high  tech center. The tech companies are buying and leasing real estate. Google paid $1.9 billion for 111 8th Ave the fourth largest building in the city.

Aug 10, 2011 02:28 PM
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Sep 19, 2011 01:25 AM
#10