Mortgage Land Prosperity

Archive for December, 2009

Kondratieff Winter Survival Guide

Now that the winter is upon us, how can we best navigate this most challenging cycle phase of the Kondratieff Wave? This section is dedicated to providing guidelines and insight for that very purpose.

First and foremost, we must not allow fear to permeate our condition or our decisions because obsessing about our woes prevents us from making the most objective decisions for our prosperity. It’s no fun either. And the central theme of the Kondratieff Wave theory is that the destruction phase is most beneficial by providing the means for the renewal of prosperity that follows. It purges much needed excesses from the system that allow more creative progress to unfold that creates more prosperity for us all. Because historical evidence supports this, we should embrace it rather than fear it. Ideally, I would prefer the harshest, swiftest kick in the rear possible so we can begin anew with a better foundation sooner. Until then, we must adapt to the reality of prevailing market conditions so we can preserve our wealth and prepare for the Kondratieff Spring around the corner. So let’s now examine these conditions to help define where we are in this winter cycle so we can better manage our financial affairs.

We have entered the period of the cycle marked by a deflationary asset bust and slowing global GDP growth. Paper assets, including tangible assets such as homes and land, had appreciated for decades and were due to reverse course. However debt levels had risen over the past few decades to all-time highs and drove asset prices even much higher than they would have under previous cycles. Home prices in the US rose every year since the end of the Depression in the mid 1940’s through 2006, over 60 years, and thus still may slide further until an equilibrium is found. The debt wave that just recently peaked was fueled in great part by new financial alchemy of structured finance products that compounded the leverage even more. Clearly, the great de-leveraging of assets will continue into the foreseeable future and thus it is prudent to avoid making any investments of securities tied to the credit process until this de-leveraging has run its course and the global banking system is on more solid ground.

We cannot understand the present unless we understand the past. The first question to be asked is when did the real estate crisis become inevitable? The correct answer is in the time period between 1980 and 1982. It has been forgotten today but the last real estate crisis in this country were the twin real estate crises of the 1980s. In the early 1980s the first crisis was brought on by double-digit mortgage interest rates. Then in the late 1980s there was the savings and loan crisis, which in those days provided most of the nation’s mortgage capital. In response to these twin crises congress passed two laws that made today’s real estate crisis inevitable.

After these acts were passed it was only a question of time until the stars aligned correctly for the volcano to erupt.
In 1980, congress passed the DIDMCA Act. Prior to this time, it was illegal to charge less credit worthy customers a higher rate of interest on their mortgage. Then in 1982, congress passed the AMPT Act, which allowed adjustable rate mortgages or ARMs for the first time. Prior to this act adjustable rate mortgages had been illegal.

If you go back to 1896 when reliable housing records first began to be kept you will find that from 1896 to 1996 housing prices tracked the rate of inflation. Then suddenly from 1996 to 2006 housing prices doubled. The problem of course in that the income of the American people did not come anywhere near to doubling in that time period.
When you stop to think about it, you will realize that it is impossible for the price of housing to exceed the rise in the income of the American people for any sustained period of time. Unless there is an enabler, a speculator’s tool that allows this to happen. What was the speculator’s tool or device that enabled this process to occur? What was the enabler?

In the whole of American history there has only been one prior real estate bubble that resembles the real estate boom and bust that we are now witnessing. It was the great Florida land boom of the 1920s. Real estate has always been expensive. What has always held real estate prices in check was that people just did not have enough money to bull prices up for very long. The money is just not there. The device that enabled the Florida land boom to occur was the “binder.” This is a real estate term that has gone out of use today. In the manner in which it was then used it was essentially an option payment on the down payment if you can conceive of such a thing.

Hey girls! Buying a house may not require wearing a mini skirt. But how much money you can borrow as a home buyer goes hand in hand with current fashion.

I know because Dad told me so.

I was one of those kids who asked too many questions. Good thing it was the mid 60’s and not the 19th century. Surely, my inability to quit asking would have caused trouble during Queen Victoria’s reign.

Little did I know the questions I asked my father as a child would eventually help me grasp the connection between affording a mortgage and skirt lengths.

I was born into a farming family. But by 1956, Dad took advantage of the price of land to sell the farm, move our family to southern California and launch a banking career.

I was the youngest so unlike my siblings, my childhood consisted of standing in shiny bank vaults not Illinois corn fields. In fact, I was more familiar with the price of corn than how to grow it.

By junior high I was already asking my dad, “If there is less money during a recession, where does it all go?”

My father, uncles and granddad were known for their “isms”. I think this was partial to southern Illinois living. One of Dad’s favorites was to compare the economy to skirt hems. I argued the logic. Not surprising. I was a teenager.

Now here is what Dad claimed. When economies flourish, fashion dictates shorter skirts. Good times equal more leg. But when economies take a dive for the worst, the result is a return to more traditional values including longer skirt hems.

A few years ago I wrote a prayer that’s been circulating through the Internet for five plus years. I called it “The Prosperity Prayer,” and I’ve received countless notes and letters from all over the globe about its effectiveness. One thing everyone likes is the instant payoff – when you read it to yourself, you’ll feel better right away!

The Prosperity Prayer

Dear God -

I surrender my financial affairs and concerns about money to your Divine care and love.

I ask that you remove my worries, anxieties and fears about money, and replace them with faith.

I know and trust that my debts will be paid and money will flow into my life.

I have only to look to nature to see proof of the abundance you provide.

I release all negative thoughts about money, and know that prosperity is my true state.

I commit to being grateful for all that I now have in my life.

I learn to manage my finances wisely, seeking help where needed.

And finally, I ask you to help me to understand my purpose in life and to act on that purpose with courage and strength. I know that prosperity will come, in part, by doing work I love. Please help me use my skills and knowledge to be of service in the world. Thank you God. Amen

There is a great deal of research that indicates if you want to create a new paradigm in your life, repeat that “new thing” every day for thirty days. My suggestion for working with the Prosperity Prayer is that you say it at least once a day for a month. Say it quietly to yourself or out loud. Write it down on a slip of paper so you can read it when you begin to feel old worries about money arise.

Following is a more detailed explanation about the philosophy behind the prayer.