In Search of the Perfect Investment

The Fed meets today to taper or not to taper.

If it announces it will taper, the market falls.

If it announces it will postpone tapering, the market will rise.

This is irrational.

But no one says the market is rational. Or that tapering works.

Remember tapering came out of Washington, which is, as the famous saying goes, eight square miles surrounded by reality.

There’s nothing you can do, except stick with solid stocks and those enjoying some momentum — if you have the stomach.

Look at this amazing bounce:

I’m  not playing Twitter. But I suspect it will run even higher. It has huge buzz.

For more on tapering, click here.

Updated Trend Chart: Home building is popping.

	Trends	Stocks and ETFs
	Air travel boom	BA, HON
	Huge oversupply of all commodities and minerals	Gold SGOL, GLD) and gold miners (GDX), BHP, RIO
	Big year for the barbarians as they sell assets. Big dividends coming in Q1, 2014	BX, APO, KKR
	Energy from solar panels has reached par with coal and is falling	Solar stocks — FSLR, CSIQ
	Shopping recovery	MA, V
	Energy from solar panels has reached par with coal and is falling	Electric utilities, especially in sunny states
	Obamacare	UNH, XLV, GILD, JNJ
	Interest rates low	The mortgage REITs — NLY, AGNC,
	The Internet	GOOG, AMZN, AAPL, PCLN, NFLX, OPEN, QCOM, SFTBF
	3D printing	DDD, SYS, VJET
	Desktop design to manufacturing	ADSK
	Housing recovery	HD, WY and the major builders
	TV’s re-emergence	DTV, CCV, TWC, CHTR
	The Cloud	AMZN, GOOG
	Tech recovery	MU
	Alibaba and Sprint	SFTBF (Softbank) and YHOO
	High speed cellphone data explosion	QCOM
	Falling knives to watch	CCV, AGNC, NLY
	Consumer icons	NKE
	Healthy eating	WFM, WWAV, SFM, THS, TFM, and HAIN

What happens when the Great Recession hits: We didn’t lose the building, but:

Distributions were suspended in March 2008 to conserve cash.

Then they raised more money to fix and flossy the building (like a fancy new lobby)  and attract tenants with enticing concessions.

The original investors’ capital contribution was $13.5 million. The add-on monies which the investors contributed were $2.7 million. The building may now, finally, be worth enough to pay the bank its $37. 3 million money and have something left over for the suffering investors (one of whom is me). But the sale will be another long haul. Figure at least five years with no rewards. A hazard of buying at too high, at the wrong time, and (for me) picking the wrong syndicator.

There are four reasons a building stops paying its investors:

1. When it loses tenants and the rent is no longer enough to pay the bank and the investors. Hence the bank gets paid and the investors don’t.

2. When the building’s loan (or loans) come due and need refinancing. And no new loan is available or only at a price that’s too high for the building’s cash flow to afford.

3. When the local economy collapses. For example Miami 2008. The rental market completely collapsed. The renters can’t pay their rent, default on their lease, hand the keys back to the landlord and leave. Proposed replacement tenants, to be enticed into the building, will demand much lower rents and many months of free rent to be enticed into the building.

4. When the building drops to some theoretical value — which has been spelled out in the contract with the bank when the owners borrowed the money.

When things with a building go really awry, there are two choices: Make a capital call on the investors and work a deal with the bank or let the bank, which typically loaned 65% to 75% of the building’s erstwhile value, foreclose on the building, and take it over. The investor/owners then will lose everything.

Eventually a new buyer may come along and buy the building from the bank — often at a price that’s lower than what the bank is owed on the building. Many buildings have been selling for half what they sold for in the halcyon days of 2005-2006. Banks, lenders and investors have taken a bath.

These buildings may now be a “bargain” — depending on the present local rents — and of course, the price.

In some cities rents have come back. In some cities they haven’t.  A “bargain” is more than the price you paid. There can be big expenses of fixing the roof, the AC, the lobby, etc.

Some smart real estate investors didn’t buy in the 2005-2006 time period when building prices went parabolic — i.e. into a bubble. Many of these investors are now back looking for a “bargain.” But it’s not easy. Banks are reluctant to sell their mistakes and take the loss on their balance sheets. (Bank accounting is disgusting.) Many places are still mired in recession, which means rents are low (or non-existent).

Many reasons to visit Africa. Truly amazing, wonderful photos. The best black and white photos you’ve ever seen. Click Africa_black_and_white_Fotos_de_Nick_Brandt

Favorite photo in weight loss ad:

I have no idea how he did it. But it sure is impressive. How he got there originally is pretty impressive also.

Don’t book through companies like Expedia, Hotels.com, etc. You get much better deals dealing directly with the hotel or the airline. And it’s easier to change your plans directly.

 Irish Text Message. Paddy texts his wife…

“Mary, I’m just having one more pint with the lads.
If I’m not back in 20 minutes, read this message again.”

Harry Newton who wonders if it will ever get warm in the north east. This is too cold and it’s not yet officially winter.