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IT'S GOOD TO BE BACK

11/20/2008


It’s good to be back. After taking an almost two month hiatus, I returned to find that our nation has encountered one crisis after the other in our economy and throughout the world. Even when I was out of touch with the daily gyrations of the various financial and economic markets, news still filtered back to me. Lehman Brothers; Wachovia; Washington Mutual; Fannie Mae; Freddie Mac; AIG; and the list goes on and on.


An almost 4,000 point drop in the Dow Jones Industrial Average. The drop in the oil price from $147 to the current rate of $56 per barrel.

Finally, the Government is ready to call our economic malaise a “recession”. We called it a recession back in November of 2007, when the economic downturn started in earnest.

If you want to have a snapshot of just how nervous people are, take a look at “Recession Watch” on page 3 of the November 17, 2008 edition of CRAIN’S NEW YORK BUSINESS . CRAIN’S compares the current recession to the great depression of 1929 and the serious recessions of 1973, 1981 and 1990.

As bad as things are, and as bad as they are going to get, we are not headed for a great depression. The sky will not fall in and the country will not turn to shambles during this severe recession that we are suffering.

Look for another year and a half of economic malaise, high unemployment figures, and the bankruptcy of many companies, including at least one automaker. Look for a 20-40% reduction in real estate prices across the board from the peak levels achieved eighteen months to two years ago. Look for an Obama administration grappling to deal with the crisis in many (mostly inefficient) ways.

The $25,000,000,000 bailout of the big three automakers is a wonderful throwback to the Democratic largess of the 1960s. This is a bad idea all around. Which industry will be next after the auto industry gets its share of the pork barrel? Of course, it is a serious risk to many American jobs if one or more of the auto makers goes bankrupt. But why should every American citizen pay a $25,000,000,000 bill to bail out three companies that have done little to improve their fortunes over the past several decades?

What’s a real estate investor to do in New York and throughout the country? Some ideas follow:

· Stay away from the residential market place on both the east and west coasts. The drop in values has another two years to play itself out in places such as New York, California and Florida. Buy at your own risk and a very serious risk at that.

·
Keep checking multi-family property sales. Prices will come down 15-20% in the New York region. If you want to buy, keep chasing deals here that will fit your portfolio. Some bargains will be available over the next twelve months and beyond.

·
If you are a commercial tenant in New York City, hold your power. The leasing rates have just begun to drop. Try back again in three to six months for some of the best deals available since the late 1990s. But do not wait to hit bottom. Nobody can predict where the bottom will be or when it will occur.

Finally, try to husband all the cash that you can. The slogan “Cash is King” will never be more relevant than in 2008, 2009 and 2010.

It’s good to be back. I missed writing this column. Please contact me at
Edklein@kleinsolomon.com
--Edward E. Klein


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