Fed meeting and changes

The Fed meet. China drops. The news ain't good. Sometimes I feel like we'd have just the same luck, when it comes to listening to the "experts", as we would letting Paul the octopus prognosticate our economy.

At least with Paul, if he's wrong he'll make some damn fine calamari or tako (my mother's favorite sushi)!!!

I really hate to sound like a broken record. It's not like I look forward to coming up with new and exciting ways to tell you that the economy sucks. Most of you don't need me to tell that to you anyway. It's like the idiotic weather announcements on the radio, I know what the weather is I'm driving in my car or can look out the window. The same can be said about the economy, just look at your bank account or ask a friend how they're doing financially.

The news from China isn't all bad. In fact I think you can take it a few ways. The headline on Marketwatch.com was that China isn't going to see double digit growth for a while. But that's just the headline. As I always preach, you've got to read the article. It seems that China itself maybe the biggest contributing factor to its slowdown. It is not news that China has money. I've spoken with people who live there. Over the past few years, China's biggest issue is how to spread the nations wealth without devaluing their own monetary system. If a government is flushed with money, they can't just hand out checks. As we know, that's just for us broken economies to do :). Ok, not so funny, but take a chill pill; I'm not the one who broke our economy.

As I was saying, what does a Communist government do with all this money? They invest in infrastructure. I've learned of programs where the government is actually building and giving their people new homes. I'm not talking about luxury homes but they're better than the man-made huts that many of the rurally people are still living in. This is just a small example of how the government increases the standard of living of their people without devaluing their currency or allowing the poor rise up in class (for good or bad depending on your political views). Their investment in lower and middle classes also allows them to spend money on stuff that is produced by the rich. In my view this is a type of trickle-up flow of money. But who am I, I'm sure there are a lot more complex things happening. The big news is that China is slowing down some of these investments and "rolled back some of its growth-accommodative polices". These actions are to prevent a bubble and then subsequent burst such as we've experienced. Say what you will about the Chinese, at least their government sees the damage that some of these financial bubbles can create; and while a few people make a lot of money, when it comes time for the bubble to bust many people are hurt.

In the long run it seems that China may be doing the best thing for itself. Only time will tell. Who knows how this will affect our relationship. I don't feel it will hurt us, but it will at some point annoy us because they might tell us no to something. Whether it is when we reach our hands out for money or look for foreign investments which we would expect to be doing better but their rules keep them from exploding. There does seem to be a yin / yang that goes on. The bigger the boom, the bigger the bust. So China is still in play but they seem to be purposely gearing back they're expansion so that they don't go with what we are going through.

That leads us to what the Fed came out and predicted. I look back to different Fed leaders claiming that we're not in big trouble and we should be more concerned with inflation and maybe it's time to raise rates, etc. Meanwhile we had just hit the tip of the iceberg and none of them, even the most radical thinkers were thinking that we'd still be in this hole. Many on the board thought that this depression was going to be a V shaped economy where we see a very hard drop but once all is said and done, we'd have a nice bounce back up. How wrong they are / where. More and more is this recovery looking like it's going to be an L shaped recovery.

Speaking with some of my sources in the foreclosure and shortsale departments, we might only be a quarter of the way through with the homes that will either shortsale or get foreclosed on. Frankly, the heads of these companies don't know what to do. There is such a lack of inventory and most of the homes that are out there are just crap. Either they're way over leveraged or have been sitting so long that people have destroyed them or the homes where crap to begin with and people are now not caught up in the whirling dervish of an exploding market and see them for what they are. Besides, you can't just buy a fixer at a "fair" price, fix it up for thousands of dollars and expect to flip it and make a profit. I'm not saying this is impossible but it's just extremely hard to do.

The other fact that I've noticed is that if anything does come onto the market that's half way decent it's being snatched up like crazy. But not only does it need to be in good condition but priced right as well. You can have a gorgeous house but if you're 50k over value, more than likely you're not going to get what you're hoping to get. people are not going to be putting in that extra money. Especially when financing is such where you're already putting down 20%. People don't want to put down 20% and then the 50k that to property is overpriced. This all leads to 1) crap on the market that just sits and gets worse over time or 2) you need to be in the right place at the right time to snag one of the good home which you might be stuck overpaying for if you really want it. These are tough choices.

Real Estate is such a vital part of our economy. It's one of the last things that we "produce" and sell ourselves. With the Real Estate market not looking good, and other factors as well, the Fed has increased it's projections of unemployment to almost 10%. Here in California, and already in many states, this is not something that's new. We need to get jobs and have jobs created. That's why I'm for stimulus that actually helps hit people. We've seen what the stimulus packages have done for the banks. They've balanced their books and they continue to do business as usual but they're not doing what they where supposed to do with that money, which was help lend to the common person and make loans easier to obtain. I'm not saying that they should go back to stated, 100% neg-am loans; but some of these hoops that the lenders are making even the best clients go through is outrageous. All of this is of the fear that the individual lenders having to buyback loans. Well in my opinion the Fed backing up Fannie and Freddie to buy loans should have taken that fear away and made the lenders more apt to actually LENDING. That didn't happen and now the Fed money has come and gone. I hope that there will be an extension of the Fed buying of Mortgage Backed Securities (MBS).

The Fed is now admitting that this economic downturn will last a while. That's the biggest thing that I got out of the meeting notes. I think we're in uncharted territories and that no one really has a way to get out of this. But like any problem, the first step is to admit there is a problem and deal with it head on.

Time will only tell if the steps that China is making are the right ones or maybe too conservative. Opposite of the Fed. Maybe they should be acting more aggressively instead of a wait and see approach for each half assed idea.