Feast or Famine

Volume IV No.2
Homer’s Hot Tip March 6, 2006

The Kid: Yo! Homer, wait up!

Homer: What’s up Kid?

The Kid: Where you going in such a hurry?

Homer: To the post office, want to mail this off to a friend of mine in London. Don’t ask what it is.

The Kid: What is it?

Homer: (laughing) You are so predictable Kid, I can’t get over it. What it is amounts to what I think will happen in the US economy over the next few months and beyond. I promised it to the Times early last month and they keep pestering me before we get too much further into the year.

The Kid: Wow! The Financial Times, aren’t you something. What the heck did you say?

Homer: It’s a secret.

The Kid: No way, you can’t keep that from me, I’m your next-door neighbor, buddy, pal, etc., etc., etc. Come on Homer fess up, what’s going to happen? Where are we headed? How do you see it?

Homer: What I see Kid is a lot of people like you making stupid mistakes and hanging on every piece of negative news and losing sight of the big picture over the next year.

The Kid: Do I really hang on every piece of bad news?

Homer: Yes you do. Fortunately, the financial markets deal in reality, not spin, and have remained by and large non-political in spite of the effort of many in Washington to make it otherwise.

The Kid: Anyone in particular?

Homer: What does it matter? That’s life inside the Beltway and will probably remains so throughout our history. But, once you recognize it exists, you can clear away the smoke and look to what really is going on. Long term I see continued prosperity, healthy real estate markets and a healthy stock market in spite of worldwide terrorism. We’re learning to live with it. Keep in mind that with computers, people can live anywhere they want. Real estate, if it is visually attractive, no matter where in the USA or the world for that matter, will benefit. Short term there are those who keep crying “too much, too fast” and don’t like the run-up in prices in hot spots like Vegas, Miami, and more than a few other choice locations. This is short-sited and unless they are looking at a crystal ball can no more call a top or bottom to anything even if it was right under their noses. Real estate remains a great investment vehicle. The downside is liquidity. One cannot shake real estate fast enough for ready cash if the market turns sour or one has to get out in a hurry because of other pressing circumstances.

The Kid: I don’t have that kind of money to flip real estate, buy and sell like some pro. What happens if your property doesn’t appreciate or if it just kind of dawdles along, then what do you do?

Homer: On the one hand anyone, even you, with a few bucks can option property for little money and flip it to a higher bidder. Huge profits are being made in a matter of days. Study Donald Trump, he invented the technique. It takes very little up front money to control literally millions in real estate. On the other hand, if the property I owned was going nowhere and I could not see my head above the water line, I would walk away from it and let the bankers worry about it.

The Kid: You kidding, right?

Homer: Nope, not at all.

The Kid: Why wouldn’t you just hold on?

Homer: Well if it were my primary residence, I might have to eat it and stay there if I had no other alternative or place to go. But, that might eventually bankrupt me and that alternative has no appeal unless its for special circumstances like a reorganization of a business or stalling creditors, or holding on to a piece of property your family has had for a zillion years. However, if it were only one of my residences or one of my properties and it was a losing proposition for me, I would not hesitate to walk away from it. You know the old Kenny Rogers song that goes like this “ You got to know when to hold ‘em, know when to fold ‘em, and know when to walk away…” There is no shame in that Kid, it’s strictly business. With that view you can take all the emotion out of it.

The Kid: I never thought of it that way.

Homer: Most people don’t. If you owe more money on real property than it’s worth, why in heavens name would you keep it? Makes no sense when you can turn around and option off something else that would appreciate rather than stagnate and perhaps even recover or minimize the losses you might have taken on the property you walked away from.

The Kid: You mean foreclosure and the bank taking the property back, don’t you?

Homer: Yes I do.

The Kid: Doesn’t that hurt your credit, your financial standing?

Homer: For about a New York minute. Once free of it one's attention can turn to real estate opportunities.

The Kid: What about the Stock Market?

Homer: Pay close attention to the evolution of the Internet, things that serve it, things you can do on it and then tie that all into the organizations that make it hum. I think we are in for about a four to five year run and companies that are new and coming on will one day dominate, perhaps dwarfing what we see now.

The Kid: Nothing can get bigger than Wall Mart.

Homer: Nothing can be further from the truth. Something will find a way to eclipse them. Maybe not in your lifetime Kid, you’re getting up there now. What are you 60? Bush, Clinton, and you are the advent of the baby boomers. Saints preserve us. Some organization will indeed replace WalMart as the largest retailer in the world. It’s just a matter of time. But don’t hold your breath for it to happen anytime soon. Right now they are making all the right moves, including manufacturing their own goods and dictating how their suppliers package and develop theirs. That’s power.

The Kid: Tell me more.

Homer: Nope. Wait till the article comes out. I’ll send you my copy, I know you’re too cheap to buy your own.

The Kid: Homer, that’s not nice!!!