April 16, 2009: Market Update

• Once bitten by Bears, Twice Shy of Bulls?
• FED Bond Buying piddles out the first day
• Outlook on Economy is Brightening, Poll Finds
• SURPRIZE! They made $$$$$$, more than they said they would!
• Intel says we passed the bottom
• Economist react, Housing may finally be near a bottom
• Is Silicon Valley’s housing market leveling off?
• Homes Sales and Homes Pending
• 10 Things Every Remodeling Contract Should Include.

There was a great article in Friday’s Wall Street Journal of April 10th, on the attitude of investors after a Bear Market. For all those of you, who thought shares prices only went up, SURPRIZE! , even the best Bull’s die. Welcome to the new Bear Market. Of course the big question is, have we hit a bottom? Is the rally just a Bear Market Rally and a Bull Trap? What do I do with my 401K and my savings? Back to the article, do investors shun stocks or do they flock back into the in search of reward? A study found that from 1964 to 2004 those who suffered a loss in bear markets were less likely to return quickly. Of course quickly was dependent on age and past experience. You would think that Depression Babies would shun the market, right? But would you believe it that young people with experience in the past 10 years were the most pessimistic! That pessimistic attitude would last 10 to 20 years. History tells me that. I remember the 1974 recession and the enormous losses taken by investors in that bear market. It took until 1983 for the Dow Jones Industrial to break out of the old high! That was 9 years. So this market should have the same effect, a picket fence of highs and lows and no long term trend.

What do you invest in, what did the investors of 1974 invest in? Would you be surprised if I said REAL ESTATE? See is Silicon Valley leveling off below for details. I saw the frustration of investors in 1974. From then on real estate was the chosen medium. Second homes, rentals, condos were all part of the chosen medium. Of course it all went too far as real estate was then bought with negative income, rather than positive income. The rationale was higher prices will pay off. Sooner or later those bull market beliefs all have a lesson to be learned, trees do not grow to the sky!

The FED is buying $300 billion of Treasuries over the next six months. TIPs, or Treasury Inflation Protect securities was the first buy yesterday. $1.5 Billion were purchase by the FED from dealers and $15 Billion tendered….OOPPS! It was not surprise to see US Treasuries sell off today!

Another great paper I have read since my college days was is the New York Times. It is now my favorite in electronic form. April 7, 2009 it was sated that Americans have grown more optimistic about the economy and the direction of the country in the 11 weeks since President Obama was inaugurated. GOSH, I knew that, my phone and in box was turning red form all the requests to see homes. The same people who told me in December that it is getting worst were now looking to buy. It is all about confidence. Bush did not have it, Obama has it. It is not the case that people do not have money. Wrong, there is a great deal of money around, especially here in Silicon Valley. I am sorry for those in the “Rust Belt” or the East Coast who are suffering, but we here have suffered the ups and downs of the technology cycle. It is fast and one day a new technology has workers looking for a new employee. That makes saving very important. They also know that the high flyer of yesterday is not the high flyer of today. Do you know that the Hoover Vacuum Tube was once in the Dow Jones? It is confidence that creates bottoms. I don’t care if it is housing, stocks, bonds, pork Bellies or Gold. If you have confidence you will buy, support and trust. That is where we are today and that is why foreclosures and REO’s are being bought in record numbers and multiple offers.

Banks and financials are making money, more than the experts forecasted. I don’t want to be a party pooper, but let’s face it. If you can borrow money free or almost free and lend it out at 29% on a credit card would you make money? This is Tony Soprano’s game. Steal the money and lend it to someone at usurious rates. Oh, I forgot the law lets the bank do so. Wasn’t that our tax dollars that we gave them at almost no interest? There has to be something done about this game of high interest rates to people who cannot afford them or are not smart enough to understand. I am beginning to think that the KORAN is right, interest is sinful

Otelini of Intel has declared the bottom of our economy, hurray! But more important is that the San Jose Mercury News has the housing market leveling off. More homes changed hands last month than in March of 2008. Is that a sign of lack of confidence? A number of readers and clients have asked me is it a bottom, will it go lower. If that was the case would people be buying in record numbers? Bottoms and recovery are characterized by mixed news, good and bad. The comment is “climbing a wall of worry”

Market Action since April 4, 2009

1. Palo Alto: zero closed escrow and 37 pending + 6
2. La Honda zero closed escrow and 3 pending + 2
3. Portola Valley, zero closed escrow and 11 pending + 1
4. Woodside zero closed escrow and 5 pending
5. Atherton zero closed escrow and 6 pending + 2
6. Menlo Park (east of 101 not included) 1 closed escrow and 27 pending + 4
7. Redwood City (over $800,000) zero closed escrow and 17 pending. - 1

The + and or the – represents the change since April 4, 2009.