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9:00 AM EST, Wednesday, April 1, 2009. I'm in two real estate funds. We own large office buildings. Nobody really knows what they're worth since they have been so few sales of big buildings in the past nine months. But the few that have happened suggest that the value of large office buildings in places like New York, Boston and Los Angeles has fallen by 50% in the past nine months.

When people or funds buy office buildings, they borrow money. Until recently, the typical number was 75%. You put $25 million in equity, you borrowed $75 million from your local friendly bank and you bought a building for $100 million. Now that the building is worth $50 million, you've lost all your money and the bank has lost one-third its money.

You haven't sold the building -- you probably can't. And maybe, with luck, the rents are still paying the building's expenses, including the mortgage. So you can always fantasize about what the building may be worth in five years time. And you can leave the building on your personal net worth statement as the price you paid.

But your bank can't. There's a rule called "mark-to-market." Your bank has to put your building's loan on its balance sheet for its worth -- i.e. show a loss of 33%, and it should probably take that loss on its income statement. A loan is an asset to a bank. By reducing its assets, a bank reduces its capital. When observers say the banking system "is insolvent," they mean the banks don't have near enough assets to pay off their depositors. When word gets around about one especially bad bank, there's a run on that bank. The FDIC then steps in and closes the bank. (Sometimes the FDIC sniffs the balance sheet and closes the bank, without the run.)

The "mark-to-market" also applies to financial institutions like insurance companies and investment banks. When banks and other financial institutions sense they're insolvent, their management freaks. They will lose their jobs (think GM's Wagoner) and their shares in their banks will become valueless. This doesn't make for happy campers. Their first reaction is to change the rules. According to yesterday's Wall Street Journal, "Accounting rule-makers will vote Thursday on proposals to soften "mark-to-market" accounting -- the controversial rules requiring companies to peg the value of their investments to the market's ups and downs. Many banks blame the rules for worsening their current problems by locking in losses that they insist are merely temporary." (For more Journal news on mark-to-market, click here.)

Loans that have dropped a third in value are often called "toxic." Some financial institutions don't want these toxic loans on their balance sheets and they're working deals with the people they lent the money to -- the building owners. "Repay part of the loan now, and we'll let you off the hook for the rest," say the institutions. The president of my two funds refers to this as "capital stack management" and says he's "now in hand-to-hand combat." That's his night job. His day job is running the buildings -- collecting rents and keeping the lobby clean. The worst part of his day job is having tenants who are in the finance business -- like banks. They're firing people. Hence they need less space. So they sublease his space at any price they can get -- typically a lot less than my president (the landlord) would. When his own tenants compete against him, he gets really peeved.

Things aren't getting better in my president's day or night job. The value of his buildings continues to fall. Tenants are leaving and rents are falling. The worst part is that "there's no visibility." When you buy a building you always make projections on rents and expenses. Having no visibility means you have no clue what the building will be worth 12 months from now, or what tenants will by paying for space 12 months from now. The big unknowns are financial institutions as tenants. At the height of the boom back in 2006, finance was 20% of America's GDP. Now it's maybe half that -- or headed there?

That's a double or triple whammy in an industry - commercial real estate -- that, once upon a time, was so wonderful.

For me personally, I'm adopting mark-to-market accounting rules and writing down my two fund investments to $2. I'm not writing them down to zero because I want them to continue to appear on my (substantially diminished) monthly net worth statement.

If everyone and every bank wrote their investments down to what they're really worth, things would look very bleak. Fortunately, many institutions have adopted the Ostrich Stance -- their heads are firmly in the ground. And others are fighting the rules, i.e. postponing the inevitable. Read the Journal, click here.

The world economy is worsening. Economists now believe that unemployment will hit 20% in many countries before this mess is over. As you know the big 20 are meeting. From Professor Roubini's consulting group this morning:

OECD (March 31): Economic activity is expected to plummet by an average 4.3% in the OECD area in 2009 while by the end of 2010 unemployment rates in many countries will reach double-digits for the first time since the early 1990s. International trade is forecast to fall by more than 13% in 2009 and world economic activity will shrink by 2.7%

The big emerging economies will also suffer abrupt slowdowns in growth. The global recession will worsen in 2009 before a policy-induced recovery gradually builds momentum through 2010. Forecast for U.S.: -4% in 2009 and 0% in 2010; Japan: -6.6% in 2009 and -0.5% in 2010; Eurozone: -4.1% in 2009 and -0.3% in 2010. Brazil's GDP is expected to decline by 0.3% in 2009 while Russia's is projected to fall 5.6%. Growth in India will ease to 4.3% in 2009 and in China to 6.3%

My friend Joe still likes the stockmarket, sort of. Remember yesterday's column? I pointed out to my friend Joe Daley that the last ten years in the stockmarket had been a bust. Joe emailed me:

You picked a great 10 year period to make your point. Only one other 10 year period would have supported your thesis: 1930 to 1939. All other 10 year periods since the DJIA was started, in 1896, would have shown an increase.

From 1980 to 1989 the DJIA went from 814 to 2600. From 1990 to 1999 it went from 2600 to 11,000.

Notwithstanding, I agree that the market is a crapshoot, and that the majority of investors will not make any money to speak of. However, investing in the market is better, for the small investor, than any other vehicle I'm aware of.

More substantial investors should do better investing in real estate. In fact the best investment a small investor can make is buying his/her residence.

What's the small investor to do with, say, $500., $5000. or the like. Real estate is not feasible; savings probably won't keep up with inflation, and the earnings are taxed at ordinary rates. So it's either spent on depreciating assets, or put into the market, probably a fund.

And there's the matter of sophistication. If you're working in a factory; driving a cab, teaching school, and at the same time raising--seriously raising--a family, you have no time to become a sophisticated investor.

A moment of candor. The market's a crapshoot for everyone.

The market observers get even more bearish. GM and Chrysler will go Chapter 11. Richard Russell of Dow Theory Letters writes in his latest newsletter:

March 31, 2009 -- Yes, it's hard to believe, the whole US auto business going down the drain in one fell swoop. Remember CEO "Engine Charlie's" famous remark, "As GM goes, so goes the nation."

Every bull or bear market provides us with a "surprise." I've thought long and hard about what kind of a surprise this bear market could give us. My answer -- I think this bear market is going to be worse than almost anyone is envisioning. I'm afraid that unemployment could rise to almost 20 percent. As for the stock market, I'm thinking that we could see the Dow fall into the 3000 zone. It seems to me that the public is taking the current situation as "just a severe recession." It will prove to be a lot more dangerous than that. And I don't think people are prepared for a real depression. In fact, most analysts won't even use the expression "Depression."

Personally I'm not that bearish. My local La Quinta Baking Company restaurant

tells me his receipts for March are up 6% over March, 2008. But he cautions that March 2008 was "pretty awful."

The Retirement Center -- Part 1
80-year old Bessie bursts into the rec room at the retirement home. She holds her clenched fist in the air and announces,'Anyone who can guess what's in my hand can have sex with me tonight!!' An elderly gentleman in the rear shouts out, 'An elephant?' Bessie thinks a minute and says, 'Close enough.'

The Retirement Center -- Part 2
Two elderly ladies had been friends for many decades. Over the years, they had shared all kinds of activities and adventures. Lately, their activities had been limited to meeting a few times a week to play cards.

One day, they were playing cards when one looked at the other and said, 'Now don't get mad at me. I know we've been friends for a long time but I just can't think of your name! I've thought and thought, but I can't remember it. Please tell me what your name is' Her friend glared at her. For at least three minutes she just stared and glared at her.

Finally she says, 'How soon do you need to know?'

This column is about my personal search for the perfect investment. I don't give investment advice. For that you have to be registered with regulatory authorities, which I am not. I am a reporter and an investor. I make my daily column -- Monday through Friday -- freely available for three reasons: Writing is good for sorting things out in my brain. Second, the column is research for a book I'm writing called "In Search of the Perfect Investment." Third, I encourage my readers to send me their ideas, concerns and experiences. That way we can all learn together. My email address is . You can't click on my email address. You have to re-type it . This protects me from software scanning the Internet for email addresses to spam. I have no role in choosing the Google ads on this site. Thus I cannot endorse, though some look interesting. If you click on a link, Google may send me money. Please note I'm not suggesting you do. That money, if there is any, may help pay Michael's business school tuition. Read more about Google AdSense, click here and here.