Top 3 Wealth Preservation Issues Update 2010

Over the past 2 years I have posted dozens of videos on the subject of Asset Protection, and several related topics. And in all those videos I have gotten more feedback on a single video done in 2008 titled “The Top 3 Wealth Preservation Issues 2008“. If you recall that video, the issues were:

1. The Economy
2. Real Estate
3. Employee Lawsuits

At the time all 3 of these issues were still in their infancy. The Economy was still robust and the Real Estate crash had not hit yet the minds of most of America.  Employee lawsuits were already sharply on the rise, but there was still little talk or buzz about them.

Today we can all see that the first 2 issues now dominate the collective consciousness of virtually everyone in America. And the final issue, employee lawsuits, is now considered by the EEOC as having reached epidemic levels (Their word not mine).

So here we are in August of 2010, has anything changed? The answer is NO, except that all three issues are much worse. In this video I take on all 3 issues again, but with a particular focus on what I consider the most relevant and critical of the 3 – Real Estate!

The reason I consider this the most critical is that I still see so many clients who are not taking the severe drop in both the value and the liquidity of their real estate holdings seriously enough.  By this, I mean that there is still a general feeling which I am seeing that we have hit the bottom and that the real estate is now about to bounce back up to former levels. I consider this not accurate for the following reasons:

Home Prices

Notice of defaults and non-performing loan statistics all indicate that we took a little bounce up from Q2 2009 to Q2 2010, but these have now all turned the corner to the down side once again.  While this news was bandied around with great flair by politicians, the reality is that actual foreclosures were and are still on the rise. This “bounce up” coincides with the effort to stimulate our way out of this crisis with the new home purchase credit and government programs. We must also consider that much of the Sub-Prime paper has been taken on by the Fed or Fed guaranteed, which makes the non-performing loan statistics highly skewed. The bottom line is that any improvement was bought at the expense of fundamental reform which is simply not occurring.

Fuzzy Accounting from Banks

Fuzzy accounting by the banks is rampant. Clearly verifying this claim is all but impossible. That’s the whole point of fuzzy accounting.  But here is what I know from talking to over 1,000 people in the past 2 years. Banks are not properly accounting for non-performing loans, and the FDIC is not requiring them to.  The FDIC, the agency responsible for insuring our deposits, happens to also be the very same agency responsible for enforcing proper accounting with the banks it insures.   Here’s the rub, if the FDIC required every bank to actually account for every non-performing loan (which is defined as a loan which is 3 months in arrears) then the FDIC  itself would immediately be considered bankrupt and there would be a massive insolvency of a majority of our banks.

The solution is to let the banks play games, which means the banks are NOT REPORTING all of their non-performing loans.  Here is how I know, I have literally dozens of clients whom have stopped paying mortgages on property for over 24 months and have not yet received a notice of default.   There is one, and only one, reason for this.  It is better for the banks to just ignore the problem for the moment (and for the FDIC to let them), as opposed to further damaging their balance sheet with  more non-performing loans which they know they can’t deal with, and which would make them immediately insolvent. What we are seeing is a MASS DENIAL of the underlying problem from the banks, the Fed, the FDIC and the government, not to mention all of us who are not taking the time to ask what is really going on. We need to WAKE UP!

Foreclosure Statistics Don’t Include Commercial Real Estate

None, and I mean NONE, of the current home foreclosure statistics include commercial properties. The mass denial and game playing has extending to pretending that commercial properties are somehow exempt from the mass contraction of the economy and the money supply which we are experiencing.  The reality is that if you look at the strip malls, office buildings and professional condos, vacancy is up dramatically. The next logical step is that defaults and foreclosures will soon follow. I expect a massive drop in commercial real estate values as tenant default on loans and landlords simply cannot re-rent the properties. Guess how I know.  My most recent flood of calls is from tenants wanting to protect themselves from recourse as they plan their premature exit from long term commercial leases. This is a big issue and no one is even taking about it yet.

Real Estate Prices set to Fall even more

This all says one thing for pressure on real estate prices. There is no way but down!  If there is one message I would like my clients to get it is that if you are underwater, or close to underwater on real estate PLEASE, PLEASE make sure you don’t just ignore it and assume that we are at the bottom. Based on what I see in my office I expect real estate home prices to fall an additional 20%-40% or possibly more depending on the market you are in. And I expect commercial property prices to readjust based on real rents, after this massive reset in the market, which could mean anywhere from 40% t0 70%, again depending on the market.

It is simply not time to pretend that all is well in OZ. Please view the above video. And if you have a question, concern, issue, whatever, please call me. I must say that the biggest issue I am finding is a hesitancy to act  in the fact of a potential crisis. None of us want to believe drastic action is necessary, but waiting until its too late can be devastating, so please get the information you need now.

Failing to do anything is acting, just make sure you are choosing your strategy and not accepting the default position just because it is the path of least resistance.

Douglass Lodmell