Lovett Realtors

The Most Likely to Make a Move

2008-04-11T11:55:00.001-07:00

It stands to reason that if you follow the market you will make money but never really get ahead. In the last entry we discovered the many layers of manipulation a person in the “know” can exploit. But I saved the direct implications of how to get into position to be ahead of the market for this entry.
Being ahead of the market is really a feat of two accomplishments. The first is, knowing the market you are getting ahead of inside and out, the second is, knowing the people/industries that will be catapulted to the front of the market. If this sounds impossible you probably need to understand the market a little better, or at least the market to which you are closest. You do not need a doctorate in economics, finance, or diplomacy in world affairs to specialize in a market you just need time in that market and reflection on how the market has moved you personally.
Most people believe that commercial real estate, stocks, bonds, and other investment devices are difficult to master, and to an extent these subjects can be heady and intimidating: if you are getting into examining the subtle influences and changing factors and the cross application of one market to another in the micro economic analysis and how to teach that to others, you may be right in your thoughts. That’s a trunk load of work and you probably won’t get rich doing it. The macro analysis is a bigger picture that may be a good place to start to help you zero in on a strategy that better suits your location, situation, condition and knowledge.
Most macro influences are accessible through the news and magazines. Begin to follow and understand the “big picture” of population growth, job layoffs in an area, local government policy and others to bring in more business. The types of business the Governor, the Mayor, or your local city council, are trying to entice by enacting legislation. A new trade agreement with Columbia or Costa Rica can point out the types of materials we are trying to import or export. But what you and your children use the most in every day life, what you are becoming more and more dependent on is a better clue. You can pick up a few macro-economic clues and use them to examine your locality, or to find a locality that will grow as they race to exploit the new developments for tax purposes themselves.
The local level runs after the tax dollars of the new developments. They begin to look for people with ideas on how to exploit the new legislation, trade agreement, government enticement or whatever is the headline of the year. The irony of the relationship is that most council people are acting by directive from a higher level and to enrich their town and district so they can be re-elected. They often don’t know their role as marketers for the economy, so listening to a platform speech or two written by a researcher at the local level can often give clues of future cottage industries. They know their office has power yet they rarely know which topics will get them elected. They throw a platform together with a hodge-podge of positions and as they campaign and find out what the market wants they hone in on it as talking points, but they rarely have any idea about how they will deliver what they promise. This is how a nation, state, town or city can be overrun by investors and outside influences so quickly.
Not only are the politicians trying to get educated and chose wisely on the issues that pole out as relevant to the masses they are trying to open the door to those issues to create jobs before they understand them. While the governing bodies race to enact legislation growth and for tax dollars they rarely set a growth cap until it is far too late. So investors and developers develop ideas to help the governing bodies entice entrepreneurs, and thereby the tax base, and they will begin rapidly building businesses, housing, office space, manufacturing, retail, industrial, etc with no idea of how much and how many will actually be needed for the “emerging market.”
The local result is some council member believing, or being sold by an investor/developer, all the legislation and the headlines that the emerging market is the town’s salvation. This is how an entire town may turn into a dominated market that will make it very prosperous short term, but irrelevant as the newest generational trend emerges.
Years ago in the 1950’s, 1960’s and 1970’s the car was king in California. We still have a car culture in California, but it is more superficial. In the early years people washed, waxed and worked on their own cars. Car clubs thrived and some towns became central locations for after market modifications, parts, paint, fixing and detailing. This occurred in mostly working class towns where it was not uncommon to find a dad snarling at a child, or two, from under the car in the driveway to grab them an adjustable wrench. A book called Out On the Porch by Reynolds Price decries the loss of the porch culture of the 1930’s and 1940’s. The communal advent of the porch wasn’t lost most people just moved to the driveway, the front yard or the street to talk while they worked on cars. The macro-economic indicators said: “build/buy/invest” in auto related vehicles. (Pun intended) Therefore, the following occurred; Gas stations, mechanical shops, parts shops, wrecking/salvage yards, parts manufacturers, and so on. And as automobiles became more reliable and gas more plentiful, restaurants, street retail, motel and hotel and so on. I know it’s easy to look back, but what about what we are in the middle of? Green Resources, Computer Technology, Global Economy, Free Trade, a major election just to name a few. Any local investor/resident can not only see what a reasonable development will be, they can begin to push the emerging market edge and lead the market. How many times have I heard a person say; if I knew what was going to happen with stock ABC, or in town XYZ back in 1960 I would have led the charge and made millions. This is sort of a lie because that person probably did not have the resources or contacts to exploit the market move they identified, which is exactly what we will discuss later.

Culling Into Line

2008-03-18T10:12:00.000-07:00

Let us take a look at some recent news. In the March 17th, 2008 edition of the California Real Estate Journal, a journal to which every California real estate investor should subscribe, there are two related articles of note. The first is a page one headline, The Globalization of Real Estate: Associations Pave the Way to Establishing International Standards, by Tony Grant and the second is buried in the finance section on page six. The article titled Fed Takes Further Steps to Ease Credit Crunch by Jeannine Aversa outlines last weeks bank bail out.
The first article points out the developers, investors, buyers and sellers are working on a more international scale, as if this wasn’t always the case. So the author warns that associations attempting to understand the future of real estate should be looking at the globalization of trends. As Grant pleads the case for associations to stay relevant to protect the jobs of the members of those associations, presumably real estate agents, another tumultuous event is being explained further into the journal.
On page six, Aversa is pointing out that $200 billion in Treasury securities is supposed to be made available at the end of March for banks to trade for their debt, that’s the average mortgage holder, for extended Treasury securities. So the banks’ selling off their mortgages, can make more funds available to, you guessed it, the average mortgage holder. This might sound circular in logic and slightly absurd to the lay person on the street, but to sharp investors it sounds like big opportunity. However, if you call your local loan representative he, or she, will tell you that the underwriting guidelines have changed and one needs a higher credit score and more money down in order to obtain a loan. Yes interest rates are low but getting a loan is difficult. Now if this blog was to rail against “the man” here is where I would insert the and what about so and so.
The authors above have done more than their job of pointing out events that have occurred and their opinions on who, what, why, when and where and they are yet they are mostly recounting “in the past events” with speculation on an outcome they desire, if shrewd, or they believe will come if, in fact, they don't know. (The professional press influencer/manipulator will often disguise the writing to seem as if he, or she, doesn't know. In another entry I will discuss how to discern this type of writer at length.)
The key to utilizing this information for monetary gain is not joining a side in the argument. That could take decades of hard work. That is called a job not an investment. The object is to take in all the observable events and calculate to see who, what, where are affected and who, what, where will be motivated to move or act. (See below entry March 17th 2008, Bail Outs). Then the work of positioning one’s self, i.e. making contacts and taking action to move one’s self into the culling line, begins. Tomorrow’s entry on risk management should help clarify how to identify who is most likely to make a move.

Bail Outs

2008-03-17T23:07:00.000-07:00

Back in the late 1980’s there were a bunch of bail outs. The Savings & Loans began writing mortgage paper and their underwriting guidelines became less stringent as the market burned on and then up, but this was the end result of other events. One of the major factors that promulgated this event was the then Chairman of the Federal Reserve, Paul Volcker, announcing that interest rates would fluctuate and the money supply would remain constant. This act spurred the infiltration of gambling into the once conservative bond market. The volitility of Wall Street in the 1980’s is exemplified in the book of the month, Liar’s Poker. I bring this up as President Bush lauds the current Federal Reserve Chair, Ben Bernake, for working through the weekend of March 15th 2008 to prepare a policy to bail out one of the largest banks on Wall Street. What is going on?
If there is any correlation in History it is only that market makers are trying to find a new way to disguise an old money maker, volatility. There is no real profit to be made for the opportunist in a steady or regular market. (Mind you don’t confuse regular with regulate, regulation and deregulation are both small indicators of volatility. One marks the beginning and the other marks the end and they both mean money)
Let me use a somewhat harsh analogy to try and loosen your perceptions of reality a bit. The military unit I served in loved to train us in this shocking way so that the lessons we learned were impressed quickly, of value, and also, in and of themselves, under suspicion. This is designed to cause one to constantly question, not in a Socratic way, but in a more aggressive and proactive way which may see its way to opportunity. That is to say a way to create a reaction wherever one can be created, or to exploit an opportunity if one exist.
So on to the analogy. Let us say that a couple gets married and they are a good looking young couple. A few years pass and there love grows and blossoms into the desire to procreate so they conceive a child. As the woman becomes more hormonal and her body changes she convinces her husband that she is less than the woman he married. By the final trimester he begins to entertain the idea that she is insane and entirely correct in her beliefs. All is well that ends well and a child is born. (For those of you with ADD or a compulsory addiction to explain what isn’t here I will not name the gender.) Suffice it to say that the child is healthy and the parents are both suitably and ever so slightly overweight for the ordeal but wiser and more content. As time wears on the woman struggles to “lose the baby weight.” The husband’s friends chide him and in all he keeps the winter coat as a badge of contentment. However, the wife loses the weight. She looks good again and yet her self image is still low. She imagines the weight is still there. The stresses of the new baby make her feel as if she is no longer attractive or a “woman”. So she has an affair.
When everything was going along fine nobody cared about the couple. When the husband had a crisis nobody cared about the husband, even the husband did nothing. When the wife had a crisis somebody noticed and seized the opportunity, but the wife was complicit. What did we learn? A simple minded person might leap to the assumption that all women can’t be trusted. A Neanderthal might suggest one keeps more control over the other spouse. And a thoughtful person might suggest only that many opportunities existed in the scenario above and the only two people who capitalized on them were the cheaters. Get my drift.
The Federal Reserve, the rich, capitalist, liberals, Democrats, Republicans, private industry, corporate America and all groups, affiliation and so on, none of these really have control over the actions of one another. They may barely if at all have control over themselves. They are all, similarly, players on the same field with particular interests, (and they often carry the conviction they represent the interest of others who believe as they do), in some phase of execution. Making a move may be counter intuitive to them. If they do not make a move on their own behalf, however, they may be “sweetening the offer” for an outside party to act.
If you get mired in motivations of others and the ramifications of their actions you will cease to see opportunity and begin to analyze. Now when was the last time you heard a woman say she had an affair because she planned it that way? Chances are she will proclaim it out of some illusory illogical response underlying her low self esteem.
However, there is a dark and forbidden philosophy of exploitation practiced by opportunistic men who look for unavailable women with low self esteem. Hmmm! So somebody is out there with a big picture of how to get lucky based on some common events and a few small signs. Tell you what, follow the link provided and order a copy of Liar’s Poker. Read the book once through without notes or underlining. Read it as quick as you can to get a general impression. Then look at the headlines of the newspapers and the lead stories on the news. (This works for more than just the economy but let us focus on the economy for now) Come back to this blog, post your comments so we can open a conversation. Then read the next entry to continue to learn how to make things happen instead of letting them happen to you.