There's a lot of scary news out there. Planes crashing, wildfires destroying cities, threats of war in Middle East, and of course, the current (crap) state of market in the great American capitalism.

I would categorize this presentation by the Carlyle Group (a very large private equity group) as "factual information" as much as it is "chicken little"/"sky is falling" sensational media.

However, there's a widespread adoption of the bad news by the news folks, such as this The Economist post:

This crisis, like most others in rich countries, emerged from a property bubble and a credit boom. The scale of the bubble—a doubling of house prices in five years—was about as big in America’s ten largest cities as it was in Japan’s metropolises. But nationwide, house prices rose further in America and Britain than they did in Japan (see first chart). So did commercial-property prices. In absolute terms, the credit boom on top of the housing bubble was unparalleled. In America private-sector debt soared from $22 trillion in 2000 (or the equivalent of 222% of GDP) to $41 trillion (294% of GDP) in 2007 (see second chart).

Judged by standard measures of banking distress, such as the amount of non-performing loans, America’s troubles are probably worse than those in any developed-country crash bar Japan’s. According to the IMF, non-performing loans in Sweden reached 13% of GDP at the peak of the crisis. In Japan they hit 35% of GDP. A recent estimate by Goldman Sachs suggests that American banks held some $5.7 trillion-worth of loans in “troubled” categories, such as subprime mortgages and commercial property. That is equivalent to almost 40% of GDP.

But everyday bloggers that have a huge following by individual web surfers like you and me. For example, though this blogger doesn't command a huge traffic, he/she presents a perfect example of gloom and doom:

The pundits in the mainstream press did not even have the intelligence to call our current situation a “recession” until a full year had elapsed. I have little doubt that they will also not see what appears obvious to me, and increasingly many others as well that, while we are not there yet in terms of certain key benchmarks, we are well on our way to a full blow “depression.” Some have played the game right down the middle, calling our present situation a “Great Recession.” The truth of the matter remains—it’s the 11th hour now, and a make or break effort is being mounted by the new administration to try to stop the economy from sliding further.

Financial Blog “Whisky & Gunpowder” comments: “It will be called a “depression” if today’s economic tempest slips out of the government’s control. From a financial point of view, a depression is a period when the distortions of an inflationary boom are liquidated — a mass die-off of the economically misbegotten. From an economic point of view, it’s a period when the general standard of living decreases significantly.” And that’s an understatement.

I'm a big fan of Tony Robbins / Joel Osteen type of thinking: that yesterday is past and that the future is bright. Yet at the same time, I was very wary of getting into 5-6 cap investments that all these idiot brokers were trying to pitch to me.

So where do we draw the line?

Of course, no one can answer that for you, especially these financial "gurus" or god forbid, these bloggers.

What I know is that, after the rain, the sun will come. After the night, the day comes. After the storm, peace ensues.

If anyone is interested in this real estate 2.0 stuff, I will be demoing RedMol.com and networking with other web entrepreneurs in the real estate market at an event called Real Estate 2.0 DEMO PIT and Meetup in San Francisco this Thursday at 7:00 PM (PST).

If you are coming, definitely drop me a private message and let me know.

Ouch.

Not just real estate, but even big internet companies serving the real estate market like Zillow are affected.

But have no fear! RedMol.com is here to stay! ;)

It was a hot, humid, and overall yucky day in summer of '95 (stop trying to guess my age) in Bronx, NY. I was sitting in social studies class next to this hot girl named Stephanie who happened to wear this super-short shorts and a super tight top. Any hormone-raging teenage boy, yes myself included, could only think about how to talk to her and maybe even get her digits.

Wow. According to this article:

The facts are:

• Small banks have massive exposure to real estate (the average small bank has 67% of its assets in real estate)
• Dozens of large regional/national banks (a la IndyMac) are also bankrupt given their extreme exposure to real estate and will also go bust
• The FDIC that has already depleted 10% of its funds in the rescue of IndyMac alone
• Losses are spreading all the way up to prime mortgages and commercial real estate; to unsecured consumer credit (credit cards, student loans, auto loans); ... to corporate bonds ... to CDSs where $62 trillion of nominal protection sits on top an outstanding stock of only $6 trillion of bonds
• In a typical US recession equity prices fall by an average of 28% relative to the peak. But this is not a typical US recession; it is rather a severe one associated with a severe financial crisis

Implications of the facts:

• FDIC will run out of funds and will have to be recapitalized by Congress as its insurance premia were woefully insufficient
• The collapse of many [risk] counterparties will lead to a systemic collapse of this market. Municipalities will go bust, hundreds of small banks, some major money center banks, the entire independent broker-dealer sector will evaporate along with $1-$2 trillion of credit losses.
• Equity prices will fall by about 40% relative to their peak. So, we are only barely mid-way in the meltdown of stock markets.
• Leaving aside the risk of a collapse of the US dollar given this easier monetary policy the Fed Funds rate may end up being closer to 0% than 1% by the end of this financial disaster
• The rest of the world is in for the pain too and as a result, energy and commodity prices will fall 20 to 30% from their recent bubbly peaks.

I know this type of gloom and doom is not the most soothing thing people want to read, but heck, the worst times are when the great transfer of wealth occurs.

I'm no Donald Trump, but anyone can see if the Fed Funds rate drops to 0%, then mortgage rates will eventually come down. Credit market overall will be cheap, except who's going to lend you money? It's very paradoxical. This stagflation might be a challenge to us real estate investors. The deals are good because the rates are cheap, but you can't get the deal because the lenders (if they haven't gone under) are tightening their belt.

These guys make a name for themselves by promoting this "gloom and doom". Of course, it makes sense because negative news sells. If a newspaper read "People in NYC are loving each other", would you read it? I doubt it. If it read, "People in NYC are beating each other to death", I'm sure 99% of the people would stop to read it.

I doubt anyone can forecast what would truly happen. Who knows? Maybe this FHA injection of cash to Freddie and Fannie might deal the final blow to the real estate and cause massive financial losses. To a point WORSE than that of Great Depression. Who knows? Maybe not. Maybe we'll see another mini-real estate boom before finally settling to a point the economy can patch up its wounds.

All I know is, I nor can anyone else predict the future. If you can, don't buy real estate. Buy lotto ticket instead. Much better returns that way. Instead of trying to "time the market", i would rather go in now while it's cheap. Cheap enough to positive cashflow with a little bit down.

Hmm, this is an interesting event: Real Estate BarCamp is a

... meeting of the minds on how to use the web to better our marketing and communication efforts in the field of real estate

Basically, technologists and real estate people coming together (hopefully without killing each other).

If anyone's reading this, you'll see me there.