In 2009, any responsible President’s priority would have been, should have been, stabilization of the financial system. Obama was looking at a financial collapse, and a mortgage collapse. He was elected as a pragmatic, unifying reformist who appeared to be, and would become, more responsible than Bush. He did not ignore Bin Laden, but set a course to find him. He did. Bin Laden was captured and killed, yet according to “The Donald” anybody could have, and would have, done the same thing. A depression was averted, the bailout of the auto industry was amazingly successful, and the Iraq war was ended with no troops left behind. He has done some stuff.

Now, with the clarity and ‘prescience of hindsight’ (this is where even I can look good), his critics are highlighting chinks in his armor. Unemployment remains stubbornly high, and no President has been re-elected with > 8%. The national debt continues to rise unabated. Obama rejected a Canadian company’s plan to build a $7 Billion oil pipeline across the United States. Estimates of 20,000 new jobs were at stake, yet Obama wants more reviews on its environmental impact. His critics salivate at this sound bite.  A Hobson’s choice for a man conflicted.

For 30 years, the Fed lowered interest rates with the hope that credit markets and risk assets would expand proportionally. It worked. Then, someone siphoned one drop too many into the beaker, and the mixture turned cloudy. Stoichiometry’s law of definite proportions didn’t approve of the quantitative relationship of the reactants. When you get down to zero interest rates, the world changes from Newton to Einstein, with regard to the physics of money. How many of you aced ‘physics’ in college? I thought so. When money yields nothing, banks won’t lend it. The combination of low return and high duration risk freezes the system.

The economy is improving (so I read). However, opponents bark that we are not going where we want to be quickly enough. We have come to believe in the emerging market story. China, India, Brazil, Turkey… sprouting a middle class, and filling the growing divide between the very poor and the very rich. Interesting. You are not considered very rich here in the U.S. until you have at least $10 Million of liquid assets (no real estate, please). The middle class here is vast. So populated, we have a lower, middle and upper-middle class. The middle class is the most productive, and they buy lotsa stuff. They want to make it to the top, and many do.  Many have become “almost rich”. The emerging nations are where we were 50 years ago. Many remember our parents humble beginnings (here is where I am amused by what some of my generation deem as humble). The richest person in town may even have been a millionaire. Many of the children of this generation became millionaires, their parents in awe with pride. This burgeoning growth throughout the world will help us grow our way back.

Euroland, like all families, is dysfunctional. The parental, frugal north, and the spoiled children of the south. There is a marked difference in their competitiveness. The longer you support less competitive countries by lending money to them, the longer the crisis will drag on, and losses will increase. Wages and prices in the south need to deflate. If you can devalue your currency, then you recover, and can see the sun rise again. On the Euro, these nations are uncompetitive. Tough, tough choices need to be made. If they keep subsidizing the noncompetitive countries, they crowd out the good banks and the good guys in the private sector. They will finish the day with more government and less efficiency. From a structural point of view, Europe won’t be able to compete.

Christine Lagarde, managing director of the International Monetary Fund (IMF), and former French Finance Minister, is noted for her ability to listen, assess, pull together a team, and get the best out of a tough situation. An IMF staff member remarked that you don’t leave the room until a decision has been reached. That is music to my ears. Leaders are created by the crisis of the times. Her management style is inclusive. A consensus is formed, which prevents a waste of future time convincing people to implement the plan. She opened her eyes to the magnitude of the problem, and warned that banks did not have enough capital reserves to withstand the crisis. Her style has built confidence in her leadership, and has recently mollified market jitters, for now.

Ron Paul, Newt Gingrich, and Rick Santorum are all serving as effective foils for Mitt Romney. Each takes positions troubling to independents, who ultimately decide elections now. Gingrich’s rhetoric may win an occasional primary, but come on; he appears to me to be a name- calling, bickering, grid-lock poster boy. The hard right’s controlling interest in the Republican Party, and its desperate refusal to embrace someone close to the middle is, for me, a troubling augur of a future of more congressional gridlock.  The ideologue’s mantra: ”I’ve made up my mind – don’t confuse me with facts”.

The debate of January 23. Romney goes after Newt for his lucrative consulting fee for Freddie Mac, influence peddling, and his controversial tenure as Speaker of the House. Gingrich was reluctant to spar. Yet, isn’t that the purpose of a debate? You are exposed to your past record of who you are. Let’s see you, hear you, think on your feet. I’m sorry Newt, this job you want, demands a lot. Newt fed at the public trough all his life. He has no “real world” experience. The Republican Party melts down, and guess who’s back? It’s the return of Newton Leroy Gingrich.  He has channeled the anger of the Tea Party movement. After being set adrift by mutinous House Republicans in 1998 with a reprimand from the House Ethics Committee, he has a huge bug up his posterior. His talks are animated with sound bites of “food stamp recipients”, “elitists in Washington”, and liberals like George Soros, to incite a channeling of frustrations. For me, he is a model of insincere rhetoric.  According to Newt, Obama is doing the polar opposite of what he should be doing. Clever, only by suggesting that everything would be perfect by now if he were in charge. Newt describes himself as a visionary. When pandering shamelessly to the ‘Space Coast’ crowd during the Florida primary, he unveiled plans to create a mammoth new space program including a colony on the moon within the next nine years.  Huh?! Gingrich’s rallying cry is an end to big government programs. The estimated cost of establishing such an endeavor ranges between several hundred billion to one trillion.  Who pays for this? What precisely do we need, want, or do with a colony on the moon? Is he imagining populating the moon, or actually solving real problems here on earth. On second thought, I can open an office there. For the adventure seekers, on a quest for a sense of proportion, I have a nice crater-front with a panoramic, distant view of the world. The quintessential, quintessential getaway. After all, we are Properties Unlimited.

Housing continues to need a jump-start. It has been mentioned in the past, and it’s mentioned commonly now. For those who are current in their mortgages, make it easier for them to finance to current lower rates. Give them a break. They are honoring their commitment; please keep them in their homes. Stop the bank owned / foreclosure sales. Housing and autos will lead us out of a recession. Make the bottom firmer, and cut any pent-up inventory gathering on the horizon.

It is the beginning of wisdom when you recognize that the best you can do is to choose which rules you want to live by, and it is persistent and aggravated imbecility to pretend you can live without any. We desperately need broad-based, wholesale, tax, entitlement, and regulatory reform. There is so much work to be done, yet we are trapped in this petty political arena of divisive finger pointing, and name calling ‘no man’s land’. As I recall, we have been through a lot in the past couple of years. We have learned a thing or two. If members of our esteemed Congress are smart (and only smart people should be elected to office), then try to do the right thing. Something. We need to make changes to the way we have become. We need to make reasoned choices. Again, I say, we need to grow a new philosophy. Here is where you might start. Act as if you were paid to achieve, as most people are in the real world. Have an actual conversation, make adjustments, and move on.  A mind is a terrible thing to waste.  Freidrich Nietzsche, perhaps the father of Existentialism, made this observation that seems apposite of this moment. It should be inscribed over the entry to the House and Senate Chambers. I paraphrase, ‘There is something in every man that is inaccessible to revision. That something can be taught nothing.’

Perhaps even better… a person who has skills can be taught. A person who has no honor has nothing.

Til then,
Ray Mott

Now the news that credit rating agency, Standard and Poor’s, has issued a warning to cut the credit ratings of many members. This may energize the EU to work harder at solving their crisis. The odd couple, Sarkozy and Merkel, has pledged to force through a change to the EU treaty at the December 9^th summit. Being discussed, will be loosening collateral criteria so that the banks have access to cheaper ECB (European Central Bank) cash (a ¼% rate cut is being predicted), and extending loan terms to encourage financial institutions to borrow, and lend to businesses and households. This will be the EU’s fifth attempt at a comprehensive solution in 19 months. I appear to dwell on a similar threat to our own credit downgrade that the U.S. Congress chose to ignore this past August. Our esteemed gathering of solipsistic, bloviating policymakers ignored the warning, and the effect of this failure led to markets around the world experiencing the most volatility since the 2008 financial crisis. U.S. markets were down 635 points (5.6%) in one day. Fortunately, our yields dropped as anxious investors fled to the safety of government bonds. Will a similar threat of a credit downgrade galvanize EU policymakers to agree on a bold plan? Here, a downgrade could automatically require funds to sell bonds of affected states, making their costs rise even further. Not good. Only when yields drop, as they have here, does it give troubled Italy, Portugal, France, and Greece more room to survive until reforms are in place. Reforms that must include austerity, especially in those countries where seemingly everyone wants to work for the government, and not pay taxes.  A Clarion call. A make or break moment for the global economy. Geithner is dispatched to Frankfurt. His mission, to meet with key European policymakers and press for decisive action to arrest this crisis. They have the distinct advantage of a precedent. They have witnessed what occurred here when our fearless leaders ‘blew it off’, and went on recess. Maybe, just maybe, there will be some adults in the room at this summit.

The velocity of money. Money is bred for speed. It is itinerant. It fidgets with nervous energy. Risk on / Risk off. The promise of a plan with teeth has led to a recent ramp up in the market. Is this another case of ‘buy the rumor, sell the news’?  Thus far, the menacing debt crisis racking Europe defies the puny ineffectual solutions being cooked up. Austerity must be accompanied by monetary easing, and allow the banks to recapitalize. They may get there, yet I am hoping our economic fortunes can decouple, and not derail this nascent US recovery now underway. Just this morning, December 8^th, the press announces that the economy has generated a 100,000 or more jobs for five months in a row. This is the first time since April 2006. Manufacturers are boosting output, retailers report a strong start to the holiday season, and consumers are said to be more confident. I hope these rumors are true. I love the idea of people running around at Christmas, buying things they, and their lucky recipients, desperately do not need. The U.S., however, is vulnerable to ‘shocks’ from around the world. A European recession would cut U.S. exports, and thus, cut overseas profits of our multi-national ‘big guys’. Growth will be slow, very slow, however, we are moving along in the right direction.

As Herman Cain predictably falls from grace, Newt ‘the Newtster’ Gingrich suits up, and enters the game. Newt has a successful lineage of influence peddling in Washington on the resume. Christian conservatives, so desperate for an alternative to Romney, have now landed on Newt. Newt Gingrich as a viable standard bearer of family values! You can’t make this up. These are not normal circumstances. The conservative faction, in their frantic attempt to derail Romney, care little that the moderate Romney just might resonate with many disenfranchised independents, and currently is their best choice for a chance to win in 2012. The conservative right is so disingenuously opinionated as to how one should /must act. Ideologues are not leaders, they are followers. Plain and simple.

The rap on Mitt, he is too rich, too polished, too Mormon, and has been on three sides of every issue. In 1994, while running for the Senate seat in Massachusetts, Romney pretended to be a bit more liberal announcing he was personally opposed to abortion but ‘I do not impose my beliefs on other people’. I hear you; however, you cannot be pro-choice in today’s Republican Party. Now he must revert to his original Mormon rectitude.  His appeal is as a businessman, a turnaround artist, a consultant who takes control of a company, flushes out inefficiencies, and takes sleepy companies and makes them sleek. A prudent recipe for fat governments worldwide. His debate performance shows a fluent command of facts in a field of candidates whose mistakes are melodramatic, and their fates soar and plunge. Maybe if Newt caves, he and Cain can form a third political party, the ’horn-dog’ ticket. Whatever happened to Centrism? Who else but the government will train three people to do the job of one, spend to pay for three vacations, holidays, medical benefits, sick days, ‘I just don’t feel like working today’ days, and then pay for three ‘start early’ retirements. Or better yet, two retirements if you learn to game the system. And we have to trust this entity to manage our fiscal policy? What the hell, it’s only other people’s money they are playing with. There is no imperative to accomplish anything. The government work ethic is shameful. Where else can you get paid, and rewarded for not accomplishing what you are being asked to do.

Yet I digress, back to real estate.  I overhear some people opine that one would be crazy to buy real estate now. One less thing to think about. The problem with clumping real estate altogether as an asset class, is that some places are just damn nice places to live. Not everything deserves to go down in concert. The correction we have witnessed has evidenced that some areas hold up better than others. Location, Location, Location, always. Uncertainty creates opportunity to negotiate. Place your trust with someone who has a seasoned approach to understanding market value.

It’s time to fall in love with Rhode Island’s coastal communities. I’m feeling Yogi Berra today. Let’s begin and end with the big man. ‘If you don’t know where you are going, you might not get there’. ‘Rhody’…more than you wished for.

My best holiday wishes.

Til then,
Ray Mott

Election 2012, a race in which the incumbent is vulnerable. It appears none of our secrets ever escape history. Obama may be the first to tell you ‘If I only knew, Health Care reform could have waited’ (off the record of course). I voted for Obama, I like Obama, and I want him to pull us through. He is the President of my Country, our Country.  He has not managed the crisis well, because he is not in charge of this feckless Congress. I am the sort of halfwit who won’t take his own side in an argument for fear of sounding too illiberal.

We have the Tea Party, and now the Occupy Movement. Right vs. left. Business vs. Government. The contrasts are too stark. The Occupiers have the lure of frustration with what they view as the unfairness of reckless financiers triggering an economic crisis, accepting a bailout, and becoming wealthier, as the victims of the recession have been left wounded to survive on the battlefield. This movement has no leaders, no agendas, just a shared conviction. A plea for help. What began as anger has turned to hope that someone can lead us in the right direction. A ‘we have had enough movement’ has thus far been civil. Leaders are born by how they respond to their times. A great leader can pull thoughts and people from each faction toward the center, and keep the car on the road. We need a great negotiator. We need a closer.

In Europe, Angela Merkel is walking a wobbly line. Her Germany is the Eurozone’s largest most influential economy, the very foundation of the Euro Union, and the only member with resources and clout to keep it alive. When we have 17 different countries with different interests, goals, cultures, languages, under the searing heat of debt, differences burst into view. Tempers flare. Merkel is under tremendous pressure to expand the power of the European bailout fund while balancing domestic voter opposition. The German ethic is no secret; hard work and thrift. Her citizens are displeased, seeing their hard earned dollars rescuing their neighbors who they perceive as lazy, profligate, and irresponsible. Germany is an export driven industrial machine. 40% of their goods find their destination at Euro member nations. Germany cannot afford to let Europe slide into chaos. This is her Catch 22, ‘Merkels’s Pickle’.

Last Monday, October 17, 2011 Sarkozy and Merkel announce ‘a plan’ to create ‘a plan’, and just the promise of a viable solution set the market free to levitate. Expectations that Euro leaders will finally do something substantive to address the crisis boosted equities, and sent bond yields up off the lows. Buy on the rumor. Now, markets need to be convinced Europe can withstand the crisis. Capital positions need to be reinforced to provide additional safety margins, and thus reduce uncertainty. Please aim high, don’t disappoint, and fall short. No more baby steps. Now is the moment to get ahead of this.

A funny thing happened today as I was attempting to collect my thoughts.  I stumbled upon this one: You can assemble factual truth brick by brick. How people feel may not be rooted in fact, but it’s true to them, and it guides their actions. There is emotional truth. The emotional truth is that sometimes when you stop, much of what you have absorbed suddenly crowds in. It can be painful, hurtful. There is a prescription for this. Don’t stop.  People rarely seem as happy as they had hoped to be before they grew up.

To paraphrase Obama’s quote which was attacked as blasphemy by Republican candidates, ‘this is a great country that has gotten a little soft, and we no longer have the same competitive edge.’ Bobby Kennedy captured the sentiment of the early 60’s with his version of George Bernard Shaw’s famous quote, ‘Some men see things as they are and ask why. I dream things that never were, and ask why not’. Today, almost every conversation ends with the fatuous declarative ‘it is what it is’. Enough already! This sadly has become the sentiment of today. Some men see things as they are and ask why, everyone responds, ‘It is what it is’, and that shuts us up as effectively as any answered prayer. Congress is a disgraceful failure. The people elected to govern are unwilling, unable, unqualified to work together for the common good. They are rutted in myopic ideology, muddling together, racing in circles, missing the point. They then reward themselves with recess (with pay), fiddling while Rome, Athens, and London burn. When you fail, you work harder, practice to hone your skills, and become better at what you do. One of the most memorable of asides I have ever heard was captured from the mind of professional golfer Gary Player. During a match Player sank an 80’ putt, and a member of the gallery quipped ‘Lucky!’ Player smiled, and responded, ‘Lucky, yes, but the harder I practice the luckier I get’. The essence of wisdom. Mistakes can be burned clean by the radiance of who you become. Mr. Obama, you are the President! There is a light at the end of the tunnel, and no, that’s not New Jersey.

Til then,
Ray Mott

A country, our country, the United States of America, has two political parties who apparently can’t agree on anything. How can we depend on the collective action of 17 countries in the Euro-zone to solve their problems? How long have we known that a chain is only as strong as its weakest link? We know gravity prevails, and ultimately, Greece probably fails, notwithstanding the attempts of a fairly strong German economy. This post bubble deleveraging period has become remarkably fragile. The American job machine is broken. We cannot expect large businesses to hire. They have learned over the last three years to trim their costs, and become more efficient. Discipline will do that to a man (I know I should say ‘person’, however, it loses the vintage stoicism of Clint’s spaghetti westerns).  Small businesses, the worst hit by this recession, have disappeared. They need to come back, others need to grow. People need to come through the door.

Jon Bogle (Vanguard founder) sees the hovering of interest rates at zero akin to zero gravity (weightlessness), where strange things can happen to the velocity of money. Ever notice how money just seems to levitate right out of your wallet, and then evaporate into thin air? We get dribs and drabs of insight along the way, however, we still know little of the intimate circumstances of the crisis of 2008, and now are guessing backwards from the consequences we are experiencing. Economic policy is stuck somewhere. Gold is knocking on the door of $2000/oz. The government is burdened with debt. This is a code red! So where the hell is everybody? The European leaders are always on holiday, and last we heard, Congress was still ‘recessing’.

The bogus sentiment of the 80’s ‘You can have it all’ became a goal to which even children aspired to. Rising house prices beginning the latter 90’s provided real backing for more and more debt, so the banks reasoned. The financial system ingeniously created ‘thinking outside the box’ (i.e. stupid) mortgage products to enable everyone to leverage up. No job, no money down, no problem Dude!  The government ran a surplus in 2001. Since then it blew that, then spent every penny it took in, and borrowed $14 trillion on top of that to keep promises it could ill afford to make. Always negligently shifting the burden to the future. Well, the future is now. Argue as you will over Standard and Poor’s downgrade of long-term U.S. government debt, it sent a message that, in their view, policy makers and our political institutions were being ineffective. AKA, they were doing a s_ _ _ _ y job on fiscal policy. Excuse my French. The lack of cooperation and irresponsibility among elected officials today, as they have placed partisan agendas before the people’s agenda, is outrageous, and it apparently reduced the S&P’s confidence in the government’s ability to manage its finances. It has the electorate becoming ‘tar and feather’ angry.

Showdown at ‘Jackson Hole’! Sheriff Bernanke rides into town, however, what’s ailing the economy just may be beyond the fed’s ability to cure. We need to cut foolish, wasteful spending, not beg the government to bail us off the edge of Recession Canyon. Enter President Obama’s Job Creation Act, and his Deficit Reduction plan. President Obama could have come forth with a deficit reduction plan at any point in his presidency. Instead, in hind sight, he foolishly outsourced this legislation to Congress and Commissions. The ‘do-nothing’ circus came to town. The Budget Control Act did nothing to allay our concerns. A promise to do your best is hardly a promise. Alarmingly, the esteemed members of Congress failed to grasp the critical nature of their mission. Did they do their best? More importantly, did they think they did? Gives solid meaning to an old saw, ‘good enough for government work’! Finally, thankfully, the President has chosen to lead with a declarative plan. A clever, critical, sagacious (now there’s a word) strategy. A framework, a foundation to build from, an antecedent to the execution of a plan for a significant call to action. Talking points are proposed, energizing discussion and debate. Somebody has to step up. We need leadership. We need resolve. We need accomplishment. Something with teeth.

An appeal to President Obama and Esteemed Members of Congress:  America can’t get out of its economic doldrums until it fixes the problem that caused the curse in the first place: Housing. The number of Americans behind on their mortgage is once again rising after modest improvement.

There are ghosts throughout the history of discovery that can soften the shock, as if somebody else had already been there and paved the way. Early on in the crisis, Yale economist John Geanakoplos proposed an updated version of FDR’s Mortgage Release Plan, suggesting banks write down principle. God, this made so much sense at the time. The Administration feared the failing banks would be too heavily hurt, as they would be forced to write down loans. Well, banks have had to write down loans anyway, and have done so in an ineptly awkward, costly, time-consuming manner. Let’s now reconsider.  Let go of ‘the moral hazard’ frustration. This sacred zone has long been breached. Let’s have issuers of federally generated loans (FNMA/FRDD) send applications to homeowners to refinance at today’s low rates so long as they are current, or become so for a minimum of three months. This will stem mounting foreclosures, and stimulate consumer spending, as these owners wouldn’t be quite so pinched. In essence, a long-term tax cut that would boost the economy. Rip the Band Aid off those too overextended, too underwater, too far behind, and speed up the foreclosure process from months to days. Clear the market. It would be a boost to the psychology of a real estate market that is continually being battered in the press. It is not counterintuitive to climb that wall of worry. Remember, the best time to buy real estate is not when everyone else does.

This is a touchstone moment for our leaders, AKA ‘The Bickersons’. Political parties are lining up seeking ideology, ignoring strategy. Esteemed members, ‘open your mind’. I am less interested in what you think you know, than in what you don’t know, need to know, and are disciplined, capable, and hungry enough to learn. Cut stupid spending, tighten loopholes, and grow the economy faster, and fast enough to prevent us from deflating.

Let’s end with a paraphrase from Rabbi Tarfon’s famous quote: ‘It may not be required that you complete the task, but neither are you free to abandon it’.

Straight and simple, ‘Get the numbers right’.

Til then,
Ray Mott

The ongoing theater in Europe is turning more tragic with each act. This reminds me of several siblings owning a beach house, and when one begins carrying more than their share, relationships deteriorate. Germany and France are repeatedly being asked to bailout the heretofore reckless children (the Piggs). An opposite acronym. Here, GDP first 6 months dipped below 2%. Earnings have been strong, outlook is uncertain. S&P downgrades US rating from top AAA to AA+. We were demoted for the first time since we earned AAA status in 1917!  Instead of reaching across the aisle, members of Congress are pointing fingers of blame across this aforementioned (over-mentioned) aisle. Shameful.

The Budget Capital Act of 2011 kicks ‘tough choices’ down the road, and does nothing to spur growth. Mohamed El-Erian (Pimco CEO, and someone I respect and enjoy), grades the deal “somewhere between an incomplete and a fail”.  And they go on RECESS?!

Our fractious political system is polarized, counterproductive, petty. If you lower taxes (and do not cut loopholes), and do not trim expenses, you can only make up the difference by borrowing. At the state level there are embarrassingly weak accounting standards employed, resorting to ‘budgetary magic’.  When public sector employees ‘demand’ pay raises, politicians grant modest step-ups, while concomitantly granting ever larger pension and retirement health care benefit ‘Entitlements’. This way the numbers don’t look that bad until years later after the politician retires. Well ‘years later’ is now. When W. took office, he was handed a surplus. The Bush tax cut expanded health care ‘bennies’, add two wars without tax increases, and we arrive at 5.8 Billion of debt. Obama inherits this debt. Enter the financial crisis with attendant recession, fed tax revenues collapse, more tax cuts, and QE 1 & 2, and Good God, $14.3 Trillion and growing. Man, the printing presses were smoking. Regardless of who, what, when and where, both parties had a careless piece of this. This is our problem.

This recent Congressional ‘dog and pony show’ is a graphic illustration of the government work ethic. Do the minimum, title it “We Did Our Best”, take all your holiday time, make sure you have good healthcare plan, and a guaranteed “I get mine even if everyone else gets slaughtered” pension and call this ‘work’. There is a notable difference between holding a job and working for a living. Maybe Congress pay should be commission based. Paid if and when they produce. The government work ethic is just plain lazy, resulting in a government that is fat and feeble. We need one that works. We need politicians that work. Please note, I readily admit to my own insignificance, yet I work seven days a week. I have people who are depending on me. Call me crazy, but I take that to heart.

I mentioned in my last blog that this was Congress’ opportunity to distinguish itself. Instead they squandered it. The have disgraced themselves. They did the minimum, by raising the debt ceiling, and continued in fashion to push ‘tough decisions’ down the road. This at the very brink of a menacing, foreboding, wealth destroying ‘Debt Crisis’! They did not, and do not have our backs in the trenches. Dismal, cowardly. Have I mentioned RECESS?!

This level of incompetence is heart-breaking. Spending cuts are back-end loaded discretionary cuts in the second half of the decade. What’s preventing future leaders from not honoring what they did not approve in the first place? Deferred spending cuts vaguely worded and specious? Note to Congress: Do we have the courage to live within our means? This is not about the ability to pay, it’s about the willingness to pay. Get in the ring, place everything on the table (I mean everything), and grow a philosophy of fiscal responsibility that defines us as fiercely intelligent, prudent caretakers of our integrity. Democracy is a messy process by its very nature. Last week’s Barron’s cover was a caricature of Obama, Boehner and McConnell bruised and bloodied. Let’s see some of this.

The Congressional effort on display at this moment of crisis is disrespectful. It is incomprehensible that those elected to guide, to lead, to counsel, instead embarrass themselves, and us. They placed our hard-earned, hard-fought credibility in doubt. We had the trust of the world financially, and they carelessly squandered it. THEN GO ON RECESS!  This new level of incompetence is now infamous. We need to refine and simplify the tax code, cut loopholes, and slash feckless, wasteful government spending. We need strong leaders with a vision. Our sanity depends on a narrowness of this vision with the ability to select vital elements crucial to our survival.

Let’s end with another Lou Mannheim. “Man looks into the Abyss and there is nothing staring back at him. At that moment man finds his character, and that’s what gets him out of the Abyss.”

What shakes us is not how weak we are, but how strong we can be.

Til then,
Ray Mott

Borrowing, it was noted, invites the danger of supplanting thrift (husbandry).  Interestingly, Hamlet was first staged when London lifestyle was observed as “ostentatious”.  The gentry was selling pieces of their estates to obtain and maintain this glitter.  Reminiscent of the early 2000’s (pulling equity from our homes to buy ‘stuff) when everyone had to have everything, confusing want with need.

Debt Contagion.  We try to avoid people with a cold.  Lending institutions forgot to avoid people with bad credit.  A bank-note, bond, or mortgage imply intent to pay back an amount owed by a specific date set forth in repayment terms.  If you lend money to someone, then you do face the risk that they won’t ever pay you back.  Lending standards were ignored, and abused shamefully.  Why not just leave piles of money out, and let people take what they want?  The old ‘honor system’. Home foreclosures fell 29% the 1st six month this year.  At first glance this seems positive, however, the system is ‘constipated’ with paperwork and procedural delays.  A backlog of short sales/foreclosures allows people to miss payments, and stay in their homes for a year or longer.  And, how about the moral hazard?  It has become socially acceptable to walk away from household debt.  Involuntary deleveraging .  After all, lots of people are doing it.  And now ‘Uncle Sam has got himself in a terrific jam’ (Country Joe & and Fish).

Contagion.  Similar to the transmission of a medical disease, large volumes of cash flow from hedge funds, and across regional operation of large international banks.  Financial contagion disseminates globally.  Linkages among financial intermediaries result in interregional claims.  The development of sophisticated financial products such as CDO’s (collaterialized debt obligations) has complicated financial regulation.  First the failure of Lehman, then the Greek debt crisis (again), Italy now on the ledge, the U.S. bumping its head on the ‘ceiling’, has spread the shock to the whole financial system and financial market.  This insidious bundling of debt obligations that has been cleverly apportioned globally has been unwinding, unraveling.  Everyone, everywhere on the verge of fiscal crisis.

I was temperately amused when earlier this month Congress actually cut their recess short to get to work on the deficit.  Good grief, this is critical.  Get to work. Why deliberately sacrifice our credit rating, and jeopardize the value of our currency.  Standard & Poor and Moody’s again warn they may downgrade U.S. government debt prompted by the imminent possibility of a missed payment of interest or principle, thus a short-lived default.  Burdensome debt is not everyone else’s problem.  This is a deal that has to get done. We are in desperate need of structural reform.  Politicians are often wrong, yet never in doubt. They hopefully do the right thing, however, apparently only after exhausting all other options.  Hard-line stances only harden the opposition’s stance.  Each party needs to freeze out their respective extremists, compress the complications, and steer toward the middle ground where the lion share of us live. Put your heads together, and grow a philosophy.  Orchestrate a reasoned overhaul of our fiscal policy.  Expose foolish, wasteful spending. Overhaul the choked U.S. tax code, end the myriad number of loophole deductions, expose and end the pathetically sinful acts of ‘gaming’ the retirement system of public employees at the tax payer’s expense, and use the savings to lower income taxes.  Seize a historic moment.  This is your opportunity to distinguish yourselves.  To not accomplish this now is inexcusable, unforgivable, and more assuredly, unforgettable.

This macroeconomic ‘Debt Olympics’ has been noised and diffused everywhere.  It has arrested, and taken hostage the real estate market (the microeconomic consumer).  I said arrested, not killed.  Everyone is on hold.  Capitalize on this inefficiency of pricing.  Remember, the best time to buy real estate is not when everyone else is.

Please forgive the rant.  It is muscled only by the vicissitudes of my haphazard experiences, and potluck of genes.

Til then,
Ray Mott

So what is a property worth?  People have become suspicious of the asking price of everything.  Comparable recent sales have always been the most reliable barometer of value, however, this can be confusing in a trendless market.  Again and again we find ourselves at an inflection point.  Each soft patch in this recovery brings out the ‘double dip recession’ naysayers.  GDP growth is less than what historically has been the norm at this stage of recovery, (first Q 2011 GDP increased at an annual rate of 1.8%.  This is down from a 4^th Q 2010 increase of 3.1%, and suggests a slower recovery), and begs the question – will it slow to a stop, and halt at ‘the angle of repose’? (Thank you, Wallace Stegner)  I think not.  This will be a slow, perhaps painful recovery.  It will be plagued by continued debt (European, and our own), and unemployment worries. 

This backdrop of uncertainty, coupled with differing levels of Seller motivation, has created real pockets of value within the market.  This is a prototypical wall of worry we must climb.  The best time to buy real estate is not when everyone else does.  This is a great time to begin your search.  It can be daunting, confusing, enervating.  In this age of shameless self promotion everyone is an expert, has knowledge, integrity, a face, a presence.  Interview different Brokers.  Pick their brain, and listen to their understanding of all the moving pieces of information that must be sorted through, and factored in. Get their take.  Find a comfort level of trust. Strip out the oversupply of foreclosed homes, and arguably the market is indicating signs of the bottom firming.  There are price range segments of the real estate market that are ill-formed, thus uninformed.   

 Even Hawkeye relied on Chingachgook and Uncas for guidance. 

 Summer at long last is upon us.  Enjoy!

 Til then,

Ray Mott

Ours is the age of distraction.  Our minds are juiced, jazzed, stoked, crammed, weary from worry.  We fear boredom, yet crave tedium.  We are so hooked on info drug/social network drug, on intravenous entertainment, that any break in the action seems unnatural.

And yet each of us intuits this.  We are lacking something, something for which Facebook/Twitter are insufficient substitutes.  So much resonates in the silence of solitude and reflection.  Thoughtful observation allows a niche for us to place into context what we do know.  Not one of us will lie on our death bed wishing we had “tweeted” more. I fear, however, that too many people will wish they had “texted” one more time ‘on their way out’.

I am not sure which is worse, seeing something that wasn’t there, or not seeing something that was.  Market prognosticators wrestle with this dilemma. There is a palpable energy to this spring market.  This energy is not to be interpreted that real estate has bounced back, that prices have stabilized, and should head higher.  The bottoming process of a burst asset bubble such as real estate consumes an interval of time. This market as it forms will sell in a tight range until inventory (actual and pent-up) stabilizes, and the number of Buyers & Sellers find themselves on a level playing field.  Many asking prices are now more noticeably being ‘marked to market’. Having read of the current correction, potential Buyers are encouraged by the analyst’s consensus that real estate may now have a limited, manageable downside. Interest rates are straining to head higher, and this will motivate many to purchase if they feel comfortable with the property they have found, and the price. The second home market in particular will enjoy an active year as mortgage money is available for qualified buyers, and there are many.  As many of us have become overseers of our financial destiny, we know real estate is an essential part of our total worth. This correction has bestowed upon us an opportunity to purchase a prudent long-term investment that ages well in an inflationary environment.  In my humble opinion, we are in the third inning of a gradual recovery.  This is arguably a great time to buy, and Buyers are being presented with a judicious opportunity to negotiate. The time to buy real estate is not when everyone else is. This is not fast money, however, do not be distracted from the objective of why you may be reading this…

A beach home/second home has intrinsic value: a getaway, a haven, walk the beach, kayak the pond, visit everywhere or lay in the sun, relax, breathe, read, garden, grill, golf, tennis, run, gather family and friends, catch a sunrise, don’t miss a sunset ~  a genuine legacy for your family to create days yet to be remembered.

Til then,
Ray Mott                                               

The market began to display early signs of stretching in 2005-2006. People buying things just to ‘get in’, funny numbers, drive by appraisals fortuitously matching contract price, no doc loans, no money down, then CDO tranches, toxic assets, bank failures, AIG, Lehman.  In the fall of 2008 the economy falls off a cliff. 2009 – frozen with fear. Potential buyers drained of emotion become reclusive, and cynical. Frankly, nobody knew what anything was worth. No man’s land. Sales were infrequent, sporadic. A buyer, a seller, on a given day agree to price. The price reflects circumstance and impetus. Scarcely fair market value conditions. Notwithstanding the circumstances surrounding the negotiated price it becomes a benchmark. A comparable.  2010 potential buyers increase in number. Establishing fair market value requires multiple suitors. Sales volume increases, fair market value begins to emerge, sellers begin to ‘mark to market’, thus enabling potential buyers to arrive with a better understanding of value educated by recent sales.

Here we are – 2011. There has been a notable, editorially celebrated market correction, interest rates remain historically alluring, the second home market is showing evidence of stabilization.  Might be time to fall in love again.  The time to buy Real Estate is not when everyone else is.

Welcome to our new website. Not quite ready to buy?  How about a taste test?  Come rent with us, and see why so many folks have fallen in love with our little ‘Rhody’.  Big things come in small packages.  Discover Rhode Island.

- Ray Mott