The Rude Awakening of 2010 Vol 1

The heyday of the Bush-Obama bailout frenzy is coming to an end.
The bailout's base of public support, tenuous from the outset, is collapsing. Its chief architects — Geithner and Bernanke — are politically dead or dying despite Bernake’s re-enlistment for another hitch. Obama adviser Paul Volcker and FDIC Chairman Bair are gaining rapidly in influence.

 

Suddenly and with growing momentum, America is shifting into a brand new phase of the crisis …

 

On Jan. 30 , Bloomberg reported that New York University Professor Nouriel Roubini, who anticipated the financial crisis, called the fourth quarter surge in U.S. economic growth, despite all the MSM ballyhoo “very dismal and poor” because it relied on temporary factors.

 

“The headline number will look large and big, but actually when you dissect it, it’s very dismal and poor,” Roubini told Bloomberg Television in an interview at the World Economic Forum’s annual meeting in Davos, Switzerland. “I think we are in trouble.”

 

Roubini said while the world’s largest economy won’t relapse into recession, unemployment will rise from the current 10 percent, posing social and political challenges.

 

“It’s going to feel like a recession even if technically we’re not going to be in a recession,”

 

You and I knew all along; we were not among those sleepwalking through the storm. Nor did we ever support those who stumbled from one ill-conceived government rescue to another.

 

We knew all along that TARP was a classic financial blunder and ultimate moral hazard: It rewarded the guilty, while shafting innocent taxpayers.

 

We knew all along that the Fed's zero-interest-rate policy is a ticking time bomb: It subsidizes and stimulates The Casino we call Wall Street, while it robs America's prudent savers of nearly every penny they hoped to earn in interest and dividends.

 

We also knew all along that the original cause of the housing bubble was congressional policy & their money-printing machine — and that Bernanke's new machine has been running at light speed by comparison.

 

Throughout this entire crisis, we could plainly see the emperor had no clothes. What's changing is that, now, many others — including some who engineered the bailouts in the first place — finally see it too.

That's why …

• Public opinion regarding the president's handling of the federal deficit has nosedived.
• Voters say they want the deficit reduced even if it hurts the economy.
• Paul Volcker — previously shunned and ignored by most of the Obama team — has re-emerged from the shadows and regained the limelight. He's pressing the administration to get tough with Wall Street. And ultimately, he could push Obama to change course on key aspects of the bailouts. 

Whether he will retain that standing in the heat of battle or in the wake of a renewed banking crisis remains to be seen.  Also, the last time Volker had this much suasion with the White House, the resident was Jimmy Carter. For those of you who are too young to remember, that didn't turn out too well for the American taxpayer. Many of the policies that brought us to the brink go back to the Carter administration.

 

But for now, his reappearance on the front lines is a metaphor for the sweeping mood change among voters and a possible policy shift at the White House.

 

But, alas, there is still no one of stature standing up to the biggest public nemesis of all — the Congress & the intrenched government bureaucracy itself.

 

There is no single organization strong enough to stop Washington from sacrificing our children's future on the altar of a false prosperity. No one able to restore the prudence and balance that can sustain our greatness over time, except the people themselves.

More later.

Your Thoughts?

Omar P. Bounds III  A.A.R.E., C.E.S., G.P.P.A.

The Bounds Auction Company

 

 

These Are Supposed to Be Social Security Fixes?

I am known as a bit of a contrarian when it comes to investment & financial matters but there have been times when I agreed with new legislation. But when it comes to Washington's decisions on Social Security and many other important matters, I'm almost always left mad as hell and confused. Are people living on the same planet as the rest of us ? The latest items that have run across my monitor are a prime example ...

These Are the Proposed "Fixes" For Social Security ?

In June, U.S. Senator Herb Kohl, Chairman of the Senate Special Committee on Aging, convened a hearing to examine ways to shore up Social Security. And he tasked the GAO (Government Accountability Office) to undertaking a study S.S. issues, including ways to “improve its impact on lower-income recipients”.
I hope Senator Kohl's report tackles the big issues, but I'm not holding my breath.

Kohl's larger report on the entire system will be released in the near future. But for now, U.S. News has reported these details in the GAO report. :

"The GAO report reviewed eight areas where, it said, benefit changes were most commonly proposed. The report looked at how effectively each proposal would help lower-income beneficiaries, whether it would have much of a financial impact on Social Security, and on how difficult it would be to administer."

What were those areas? Here are a few of the most common ideas our lawmakers are coming up with when it comes to making Social Security better.

A. Guaranteeing a “minimum benefit” amount for people who have worked lower-wage jobs during their careers.


B. Lowering the number of credits needed to become eligible for the program.


C. Adjusting calculations to get more money into the hands of low-income single workers.


D. Giving credits to stay-at-home parents so they don't miss out on benefits.


E. Increasing survivor benefits so widowed spouses, particularly those who didn't work, are less affected by spousal deaths.

And these suggestions continue, but they all essentially amount to increasing benefits and coverage, particularly for folks who didn't pay into the system.

All of which leaves me wondering: What are these people thinking?

Now is precisely the wrong time to be trying to find ways for Social Security to pay out MORE. The system is already unable to pay out that which it has already been committed to! This program's continual expansion over time has been gasoline on what was a well-intentioned, but ill-conceived, fire of a Ponzi scheme from day one.

When Will Someone In Washington Start Talking About The Real Problem?

This is rearranging deck chairs on the Titanic. 4 Obvious items come to my mind:

Obvious Item 1: Social Security was intended as a pay-as-we-go structure, which by any by definition means, that the more we ask it to pay out, and the more people we ask it to cover, the more money we need going IN!

Obvious item 2: Today, LESS money is coming in because of the recession.

Obvious item 3: Recipients are living longer, which is compounding the overall funding crunch.

Obvious item 4: Demographic trends tell us that there will be fewer and fewer people paying into the system and more and more people receiving money from the system as the baby boomers retire.

Social Security will begin paying out more than it receives just six years from now.

That is 2016 (and possibly sooner), Social Security will essentially be losing ground every single day. As reported by Niles Mattive of Money & Markets Blog, by 2037, it will only be able to pay out 78% of the benefits promised today.

Ok, so the stewards are busy rearranging deck chairs, the band is playing and the passengers are dancing, the Captain isn’t on the bridge, ice is falling on the deck and the view of the Iceberg is filling my monitor. Now I know how the Titanic’s lookout felt.

So what’s going to happen: They'll continually follow the same "what us worry?" policies they pursue everywhere else. Issue more misdirecting talking points, ignore budgets altogether and figure out ways to spend more, all the while kicking the can down the line.

But mark these words — another Social Security tax hike and a removal of the current contribution cap are coming sooner rather than later.

Those inside the beltway are likely to reduce benefits for many of the same recipients who spent the last few decades funding the program. The most obvious way to do this is by additional taxes on benefits being paid to “certain” recipients. On that, you can make book.

Omar P Bounds III A.A.R.E., C.E.S., G.P.P.A.
The Bounds Auction Company

Broker Compensation in the Real Estate Auction Process

Broker Compensation

Many CCIMs and residential brokers have formed alliances or work with real estate auction companies. Others are looking at auctions as a way to expand their business and income opportunities. Since the process for auctions and traditional sales are different, it makes more sense for those without auction expertise to develop a partnership with an experienced national and/or regional auctioneer to expand the potential for success and represent clients effectively.

Some of the areas where CCIMs and brokers can earn fees from auctions include:

• referring clients or properties to auctioneers for sale;

• representing buyers in purchasing an auction property and receiving a buyer's brokerage fee;

• acting as a local designated broker for an out-of-state auctioneer;

• assisting an auctioneer at open houses; and

• working with the auctioneer at an auction event.

Interestingly, during the last 30 years in the real estate auction business only about 15 percent to 20 percent of auction buyers have been represented by buyer brokers. Earning a commission as a buyer broker is easy: Don't let the opportunity pass you by.

Omar P. Bounds III A.A.R.E., C.E.S., G.P.P.A.
The Bounds Auction Company

Changing Commercial Real Estate Auctions with Technology

Changing auction technology is changing the way commercial real estate is sold.

EBay and other online services have increased the visibility of all auctions, including how they are perceived and conducted. Online real estate auctions, when combined with live open outcry real estate auctions, are taking on more prominence; however, if not implemented properly these events can prove to be unsuccessful.

While many products can be sold easily in online auctions, real estate by its nature is unique and individual. No two parcels of land, buildings, or locations are exactly the same; each has its own particular characteristics. Thus, due diligence is an extremely important part of the auction process. Technology programs, such as the CCIM member service STDBonline, are very helpful in preparing due diligence materials.

Most importantly, auctioneers rely on new technology today to publicize auctions and target potential bidders. In the past the most effective means of advertising auctions to buyers was local newspapers, the Wall Street Journal, and direct mail. However, with the lower circulation of print media and increased postal mailing costs, electronic media is now more effective. Useful formats to reach potential buyers include commercial information exchanges such as LoopNet, CoStar, and CCIMNet; targeted e-mail blast services; Web sites; banner ads; targeted cable services; and radio. In addition, potential buyers can access detailed due diligence materials on password-protected Web sites. At the auction event, Web simulcasts of live auctions bring buyers from anywhere in the world into the active bidding.

In a marketplace where value is uncertain and sales are slow, auctions demonstrate where market equilibrium should settle. The high bidder gets his purchase price reinforced by the fact that other buyers are willing to pay just $10,000 or $25,000 less than the winning bid. Auctions provide the full transparency certain situations require, such as in probate or trust sales. Bankruptcies and corporate portfolio sales can be accomplished more effectively in auctions than in traditional negotiated sales. Auctions may be the best valid forum to find today's true market value for many properties.

Need answers?

Omar P Bounds III A.A.R.E., C.E.S., G.P.P.A.
The Bounds Auction Company

What is a Buyer's Premium?

What is a Buyer's Premium?

Buyer's Premium?  A unique opportunity an auction for real estate provides is the ability to use a buyer's premium, which offsets some or all of the seller's auction transaction costs. The buyer's premium is an additional amount that is added to the high bid price to determine the total contract price the buyer will pay to the seller at closing. The agreement between seller and broker/auctioneer provides the particular percentage of the buyer's premium that is paid to the broker/auctioneer by the seller at the close of escrow.


In an active and aggressive bidding environment, the buyer's premium is perceived by bidders almost as a sales tax and can lead to higher net proceeds for the seller. Specified buyer's premium can range from 3 percent to 10 percent of the bid price and is an accepted part of the process throughout the auction industry.

The buyer's premium allows the seller to increase the gross sales price and is a way for the seller to transfer transaction costs onto the buyer. When implemented properly, the seller's total effective transaction costs (marketing expenses plus commission) can be less than that of a traditional brokerage sale.

Wouldn't you rather take home more of the transaction, rather than less?

Omar P. Bounds III A.A.R.E., C.E.S., G.P.P.A.
The Bounds Auction Company

Seller's Expense for Real Estate Auction

The Seller's Cost of a Real Estate Auction

There are some differences in seller costs in an auction program versus traditional marketing. With an auction sale, a normal six- to 18-month marketing program is compressed into six to eight weeks or less. To accomplish this, an intense marketing and public relations campaign is required to present the property to all potential buyers, get them to on-site inspections, and eventually have them attend the auction event to bid.

These high-profile marketing expenses are a seller's cost and often are paid to the broker/auctioneer in advance of the actual auction date. These costs can range between 0.5 percent and 1.5 percent of the property's value.
In addition to marketing, a few other fees may be part of seller's expenses. Most often, a title search or a preliminary commitment to title insurance is prepared by an abstract company. This is usually in the range of a few hundred dollars, and very often is returned to the seller at settlement if the title insurance is placed by the buyer with the same company. In addition, it has become more common for the auctioneer to recommend that sellers obtain a pre-auction mechanical inspection report of the subject property for distribution to prospects as part of the property information package. This is a great sales tool for properties that are in very good condition costing in many instances less than $500.00.

This recommendation is determined on a property by property basis at the auctioneer's discretion. If a property is in obvious disrepair, an inspection report may not be beneficial to the outcome. In this case, pre auction inspections are encouraged at the buyer's expense. In either case, the auction sales contract remains non-contingent.

For a large property or portfolio, a stand-alone auction for a specific seller is structured with the marketing costs paid by that seller. Alternatively, a number of sellers with small properties can be combined into multi-property, multi-owner auctions where all sellers share the required marketing expenses.

When one considers that the auctioneer's commission is generally paid via a buyer's premium, the seller of real estate at auction has a much lower exposure to commission expenses, carrying costs and contingency risks.

Omar P. Bounds III A.A.R.E., C.E.S.,G.P.P.A.
The Bounds Auction Company

Why Real Estate Auctions Work Today

Why Real Estate Auctions Are Working Today.
Auctions offer sellers two factors that are missing from the traditional negotiated sales process: a set time frame and control over the sales process. Particularly in today's market, many properties are experiencing limited or negative net operating income and sellers are supporting properties out-of-pocket each month. Tenant bankruptcies are causing unanticipated high vacancies or lead tenants already have vacated properties. Other buildings may be in or subject to pending foreclosure or bankruptcy, or a lender already may control the property and needs to get it off its books.


Even if the traditional transaction market was functioning properly, such properties would be difficult to sell. But in today's market, brokers and sellers come up against issues of financing, valuation, and lack of comparable sales. For example, how do you value properties with high vacancies, low or negative net operating income, or no comparable sales? And while it may be relatively easy to find a buyer, can the buyer find financing?

The auction process eliminates many of these concerns by giving the seller control over the sale. In the auction process sellers control the following factors:

• timing of the sale, usually 60 to 90 days;

• structure of the offering;

• financing through either an assumption, structured seller financing, or committed third-party financing;

• predetermined purchase and sale agreement:

To make buyers comfortable with bidding and the purchase, the seller must make the contract fair and commercially reasonable;

• property on an as-is, where-is basis with limited warranties; and

• closing in 30 to 45 days from the date the contract is signed.

What more do you need to know?

Omar P. Bounds III A.A.R.E., C.E.S.,G.P.P.A
The Bounds Auction Company

Gaining Traction in Commercial Real Estate with Auction

Accelerated marketing gains traction in today's troubled market.

By Omar P. Bounds III A.A.R.E., C.E.S., G.P.P.A.
The Bounds Auction Company

During the last 24 months, sold and closed commercial real estate transactions have been in short supply, while unsold properties seem to have increased exponentially. The last cycle in which CCIM practitioners experienced a somewhat similar market was the late 1980s and early 1990s. During those years, large property portfolios were timely and effectively sold by the Resolution Trust Corp., banks, and private sellers through real estate auction programs that came into vogue. While negotiated transactional sales were few or nonexistent, auctions and accelerated marketing programs established current true market value in a competitive bidding environment.

Today, decreased values and foreclosures of commercial assets are pervasive once again as a result of the credit crisis. As banks, institutional lenders, and private and corporate sellers expand their real estate-owned or workout situations, the question arises: How can we move these properties off our books on a timely basis at market prices?

Real estate auction marketing can be an effective alternative to the more-static negotiated sales marketing model. Open outcry,Sealed Bid auctions and other types of accelerated marketing techniques are efficient methods for the timely sale of most commercial real estate assets. In recent years a number of CCIMs and other real estate professionals have become involved in open outcry auctions or sealed bid sales as their traditional negotiated sales volume has declined. These auction programs have helped clients extricate themselves from difficult-to-sell properties.

Do you have a property or a client in need of a timely sale?

The Next Financial Perfect Storm

January 6th, 2010

February, 2010. The next “Perfect Storm”
Already on its way to the business news channel of your.
It may crush the existing structure of Fannie and Freddy and drag the economy further down, no matter how many dollars the fed throws at it. Why did the Treasury & Fed recent announce that Fannie & Freddie were getting UNLIMITED backing – A BLANK CHECK, on of all days, this past Christmas Eve.

Here are the events:
Each individual event will have little visible effect alone, but combined they easily could crash the economy: these are all pending events, many will be listed on Major Media Outlets as individual events, because no one looks at them all together - but that is how we will feel them in our wallets.

1st, in the financial sectors : the next wave of ARMs will start to reset, mortgage rates will go up, the next wave of foreclosures will hit, the default on holiday expenditures will cause more chapter 7 and 13 filings, retailers already know how little they made, more chapter 11s, more scale backs or just plain closing. Example: The Footlocker retail chain is closing 120 stores - Lane Bryant closing 100 plus stores. The commercial sector bust is underway and will hit a crescendo in 2110.
Except in Washington DC and its suburbs, where office space demand is on fire. Can’t imagine why?

#1: In Banking & Finance;
The FDIC will collect the next 3 years of fees in advance to cover their depleted funds from the past bank failures. This will stress some but not all. Many banks are actually healthy, but it will push the weaker 10% that much farther towards instability.
.

So banks will tighten lending rather than loosen as they must scramble to come up with this FDIC “tax”. More FDIC take overs, in essence using the banks own funds raised from the accelerated fee collection to do so, more bank mergers to avoid insolvency, all resulting in even tighter money and possible more expense money.
1: B The Stock Market.
The American stock market, in particular the DOW at 10,600, is a mini bubble looking for a pin. It is very unstable due to any # of influences, but the two that stand out are, first, a significant lack of trading volume and secondly, the low cash reserves being held in money market accounts, as is currently being commonly reported. These are contra indicators to any true growth. Don’t over rate the strength of the DOW.

#2: Employment
While losses will slow, simply because employers are hitting the “can’t cut and still produce“ point, losses will continue.
Employer hiring, what little there is,will slow to the minimum as the uncertainty of the goverment action on healthcare and new taxes dwells.
If this issue turns out as unfavorable as many believe, mid to small sized businesses will choke on them, resulting in more layoffs or more out right closures to pay for them.

The seasonal job numbers were “insignificant”. Retailers didn’t hire this season, and even more sales went to internet providers.

The numbers of “new” unemployment extension enrollment will be staggering.

#3 - Effects of the Health Care “Reform “Legislation.
Consumers will see new FICA rates and need to cut spending even more.

The proposed 40 % Luxury tax will result in a 20 to 30 % drop in so called “disposable" income for those who had any. This will murder an already abused luxury items sector, costing more high skilled, high paying jobs. Say good bye to RV’s, boats, and the jobs related to them and travel.

The insurance companies will pass any taxation along to premium payers. More disposable income disposed of.

The absurd proposed tax on medical products,(taxing everything from band aids & tampons to artifial limbs and knee replacement hardware) will also be passed along. When a state of the art prosthetic above knee leg, already costing $60,000, is that something that we really need to tax? Is walking such a luxury?

As we have seen, much of this federally mandated program will be borne by the States, many of which are running on empty already; therefore States are forced to also raise taxes.

Insurance rates, taxes and any health related cost will increase immediately.

An early arrival of the Alberta Clipper and coldest winter in a few years coupled with a volatile oil market drains that last bit of disposable income.

If you haven’t already said good bye to your disposable income, do so now.
The vicious cycle of “Trickle Down" is relentless when in downawrd motion. The big layoff when the publicly traded multi national cuts compliment and orders to the regional, privately owned vendors and service suppliers who in turn must lay off, and can’t invest in their operations. These owners don’t buy a car this year, can’t take a vacation or take their kds out of the expensive private school.

With fewer orders going out to the multi national, the local trucking or UPS hub layoffs, the bar & restaurant where the workers met after their shift cuts back hours, lays off a waitress, their supplier cuts a driver or too and a hairdresser over on main street throws in the towel and walks away from her lease putting the squeeze on her landlord, contributing to the commercial real estate sector’s meltdown. Meanwhile, the stock in the multi national has tanked, taking the IRA’s of all above into the tank with them.

Tell me there is no such thing as trickle down economics.

Omar P Bounds III AARE, CES, GPPA
The Bounds Auction Company