Another exerpt from my year end letter to investors that I thought you would find informative. Enjoy!
At the time of this letter, the Fed recently confirmed that they expect to keep rates very low until the latter part of 2014. Although I think this confirmation is a moving target that could change if the economy begins to expand much more rapidly than is currently estimated, the low interest rates are currently only favorable to very large successful businesses; while the rest of the small businesses are still stuck in a 2008 credit environment. The small business environment began to improve lately, but very slowly. Governments and institutions must come to the realization that a healthy economic expansion is only possible if small businesses and entrepreneurship are alive and prospering. The same message is starting to scratch the surface with financial institutions that refuse to lend to individuals without pristine credit or financial means. Lending money to Bill Gates is not going to stimulate the economy. Although the borrowing requirements were obnoxiously low prior to the real estate crash, they have now moved to the other extreme. A healthy middle ground is necessary to end the perpetual real estate decline, and eliminate the scared money mentality poisoning the minds of lenders and investors alike.
I believe that an improved credit market would initially cause some real estate prices to have a negative reflex reaction, before settling and having a drastic, but slow improvement to the real estate market and overall economy.
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