We start the New Year with a continuation of the last days of the old year: stock market rise and bond market sell off. The stock market has apparently priced in all the bad news, the bond market has priced in all of the "flight to safety" and now both are reacting to the fact that we are going to hopefully come off the bottom of this recession and start tackling the problems. Now for the catch 22: If the financial markets start acting like the worst is over, then they might find out it really isn't or may be starting again. Why? Bad times bring low rates; good times see rates go up. To finish the thought, if rates go up, can bad times return, or put another way, will this slow up the return to good times?
Looking at the real estate market (which of course is the industry I participate in all facets), sales and financing of real estate, we need low rates to entice a return to normalcy. When one ponders the stock market you see that you need higher prices to entice a return to the "good old days". In both cases low asset prices, stocks and real estate, cannot for some strange reason present enough reason to lure the general public back into the industry. The stock market always does better at the heights of the averages than it does at the bottoms. People do not get interested until they feel everything is booming and then much to their chagrin, they jump in and end up on the short end. Today we find nobody excited about the stock market or the real estate market. The average person on the street will tell you that real estate is going lower and they are waiting; the stock market is in a bear market and won't return for at least a year. What is wrong with that picture?
It is always better to buy when everyone is selling and sell when everyone is buying. Is it easy? Not a chance! Being a contrarian is the hardest and highest paying "job" in the world. You must look at a horrible situation and see a rainbow to buy; you must look at the sweetest sight you have ever seen and find the rotten apple that tells you to get out now! Unfortunately you might find yourself at the wrong side of the trade for a while and start questioning your reasoning. That is because nobody buys at the bottom and sells at the top. So you will find yourself selling a bit too soon or buying a tad early. The courage of your convictions will save the day in most cases.
Roger Schlesinger's Mortgage Minute is heard on hundreds of radio stations and daily on the Hugh Hewitt radio show and Michael Medved shows. Roger interacts with his hosts and explores the complicated financial markets in order to enlighten his listeners and direct them along their own unique road to financial freedom.