PRIVATE CLIENT LETTER
This letter is intended only for accredited investors who are clients of either Blackburne & Brown or C-Loans, Inc. You signed up for this letter with Blackburne & Brown or by using C-Loans.com. Removal instructions are below. Today we'll discuss investing at a time when banks are too frightened to lend to each other.
Joke
Du Jour
From a passenger ship one can just barely see a bearded man on a small island in the distance who is shouting and desperately waving his hands. "Who is that?" a passenger asked a passing steward. "I have no idea," the steward replied. Every year when we pass by, he just goes nuts."
Banks Don't Trust Each Other's Financial Health
So many of the large banks have billions of dollars in unrecognized losses from subprime loans that they afraid to lend funds to each other even overnight. LIBOR - the London InterBank Offer Rate - is a whopping 75 basis points higher than the Fed Funds rate of 4.25%, a disparity almost unparalleled in recent times. These are indeed dangerous times for investors.
Colon Joke
My nine-year-old daughter asked me what a colon was, and I explained that it was a part of the body that food goes through before being eliminated. Then she asked me what a semicolon was, and I told her that it was a colon the size of a truck with eighteen wheels.
So What's An Investor To Do?
Whatever you do, in my humble opinion, you must avoid leverage. We're in a tug-a-war between inflation and deflation right now. The Fed poured tens of billions of dollars into the credit markets to bail out the banks this month. This is incredibly inflationary.
At the same time, over a trillion dollars in loan payments have to be made every year on over $20 trillion in debt owed by Americans. This $20 trillion includes the Federal debt, state and municipal debt, corporate debt and consumer debt. This trillion dollars in required interest payments is incredibly deflationary.
Which will win - inflation or deflation? I dunno. But you can bet that the swings in the markets will continue to be violent. The wisest course is arguably to be out of personal debt. If you own investment real estate, try to own it free and clear, so you will not be tempted to walk away from it in a deflationary downdraft. When push comes to shove, the Fed will save the banks, even if it has to destroy the dollar. When the endgame comes, I do want to own some real estate.
Maternal Feelings Joke
"I get those maternal feelings sometimes, like when I'm lying on the couch and can't reach the remote, I think, 'Boy, a kid would be nice right now.'" -- Kathleen Madigan
My New Book Will Be Printed By January
Most people can't understand how deflation can occur. The Fed can just print up more money, right? How can there possibly be deflation?
What they don't understand is that we don't just print currency and spend it, like the Weimar government in Germany did in 1921. No-no-no! We increase the money supply only by making new loans. These loans eventually have to be repaid! It's like money on a spring. Sooner or later it has to snap back.
My new book, The Reverse Multiplier Effect - When Crushing Deflation Destroys America, is a financial thriller that explains the dangers and significant chance of deflation.
Once you've read this book, you'll understand why the Fed simply must err on the side of allowing too much inflation. A deflationary collapse, as you will see, would be horrific.
Postman Joke
Little Johnny told his mother that he had been playing Post- man. "Postman? How could you do that when you had no letters?" "Oh, I had some letters," replied Johnny. "I was looking in your closet up in your room, and I found a packet of letters tied up with a ribbon. I posted one under every door on the street."
Okay, So Where Should You Invest?
I like gold, Treasuries, and corn farm land.
Gold? In a deflation?
Remember this: Gold cannot default. In addition, the Fed has to keep driving down interest rates in order to keep the weight of $20 trillion in debt from crushing America. This drives down the dollar, and drives up the price of gold in dollar terms.
I also like U.S. Treasuries. The Federal government never has to default. In the Civil War the Federal government even gave itself the power to print greenbacks and use them to pay for the war. So the U.S. Treasury is arguably one of the safest of bets. In my book the yield on the long bond actually drops to less than 1%. But hey, that's just a story made up by some mortgage broker.
Lastly, I like corn farm land. Did you notice that the price of corn for May 2008 delivery is up to $4.46 per bushel?
Frazzled Mother Joke
It was one of the worst days of my life: The washing machine broke down, the telephone kept ringing, my head ached, and the mail carrier brought a bill I had no money to pay. Almost to the breaking point, I lifted my one-year-old into his high chair, leaned my head against the tray, and began to cry. Without a word, my son took his pacifier out of his mouth and stuck it in mine.
Trust Deed Investments
For information about investing in 9% to 11% first trust deeds, please click here.
Shop Girl Joke
"I wrote a novel this year called, 'Shop Girl,' and several producers came to me and wanted to turn it into a movie. And I said, 'If you think you're going to take this book and change it around, and Hollywoodize it and change the ending, well ... that's going to cost you.'" -- Steve Martin
Need a Commercial Loan?
Blackburne & Brown is now making hard money commercial loans and land loans as low as 9.9% and zero points for 15 years. Call Alicia Gandy at 916-338-3232.
Wine Joke
I was nervous the night my wife and I brought our three young sons to an upscale restaurant for the first time. I ordered a bottle of wine with the meal. When the waitress brought it, our children became quiet as she began the ritual uncorking. She poured a small amount for me to taste, and then our six-year-old piped up, "Dad usually drinks a lot more than that!"
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Fishing Joke
A boy was taking care of his baby sister while his parents went to town shopping. He decided to go fishing, and he had to take her along. "I'll never do that again!" he told his mother that evening. "I didn't catch a thing!" "Oh, next time I'm sure she'll be quiet and not scare the fish away," his mother said. The boy said, "It wasn't that. She ate all the bait."
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