LJL Funding Blog

The oil price continued to lead commodity prices down, with the dollar responding positively and interest rates remaining low with bonds rallying, but stock prices did not embrace these new directions with any great enthusiasm. A continued downward trend in commodity prices should bode well for the general economy and relieve the inflation pressures, which if left unchecked could see much higher interest rates. The prevailing opinion now suggests that the Fed will leave interest rates unchanged for the rest of the year, which is good news for borrowers, but challenges investors with low and even negative inflation adjusted returns in most of the bond market and continued uncertainty of investments in the stock market.

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The unwinding of the investor bias towards owing commodities and shorting stocks, especially financial stocks, continued last week with high levels of volatility, but by week’s end the stock bulls were clearly in charge and commodity bears in oil and gold emerging from hibernation. Financial stocks were not quite as robust as the rest of the market and even the homebuilder stocks had a weak pulse, at least they are not dead. With labor productivity increasing, uncharacteristically during weaker economic times; interest rates still low; a dollar that is strengthening; stocks showing some resilience and the commodity led inflation threat decreasing, the economic doomsday - so well publicized – may well be averted. Investors could well start to seek positive inflation adjusted returns on their cash now well hidden under various mattresses.

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The struggle between the bulls and the bears for dominance in the market place continued this week. Oil prices, closely followed by other commodities moved in the general direction of a test of the July highs, while stocks (with increased volatility) generally moved towards testing the July lows.  The economy as measured by GDP continued resolutely to dispel recession, while the labor market after seven consecutive increases in the unemployment numbers continue to push towards a recession.  Extreme care is advised in this choppy investment arena.

Housing prices continued to decline and doomsday prophets heralded the numbers. The chart below measures the month by month change in home prices in California and Arizona and it clearly indicates that although prices are still declining, the rate of decline has significantly slowed over the last three months. This slowdown is consistent with higher volumes of houses sold and a slight Improvement in overall inventory.

The anniversary of the start of the credit crunch or implosion was remembered this week.

We continue to place great emphasis on security in our portfolio with our current loan-to-value of the portfolio at 55%, still yielding a return of over 10% per annum as it has done for more than a year now.

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Another week of economic activity that may well be signaling the beginning of the end of the financial crises. A large oil trader – speculator – went out of business as oil prices continued to decline, normally one of the first signs that the oil bubble and with it the commodity led inflation threat, may actually have started to deflate. Beware: We should have another rally in oil prices, and if new highs are not made the long expected correction may be in the offing. On the other side of the scale stocks in general and the financial stocks in particular moved in the general direction of a test of the July lows, again if these lows hold we may well see some strength in the stock market. On the real estate front, bad news continues but at a slower rate with generally upwards revisions of previous months’ data. Volume is up, inventory ever so slightly down but still at record highs and government (taxpayer) help and a bailout now all but certain. We are not expecting a recovery, but stabilization in the market in general.

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LJL Funding, LLC poses the question: Where do we go for sound financial advice and investment strategies in today’s uncertain market? In times past, in a Bear market, investors have first moved to the sidelines and then into savings in certificates of deposit (CD’s). The experts are now recommending investments in High-Yield Bond Funds. Is Trust Deed Investments the answer to our current investment woes?

San Diego, CA (PRWEB) July 26, 2008 — According to Johann de Villiers, President of LJL Funding, LLC and manager of the LJL Funding Secured High Yield Income Fund I, “Your family is entitled to a secure investment they can understand.” Johann’s free 10 Minute Economic Update is read by thousands each week. “As an investor in our trust deed investment Fund, regulated by the California Department of Corporations, you have the security and diversity of real properties without the complexities and uncertainties of the market.” The LJL Secured High Yield Income Fund I is professionally managed and audited with monthly reporting and income checks. Investors are currently receiving yields above 10.5% annually (past performance does not guarantee future results). Wall Street financial advisors searching for risk reward alternatives are recommending the Bond Market to meet the expectations of investors wanting to feel safer. Given the state of the U.S. and world economies; compounded by troubled blue chip companies, financial institutions and municipalities, the Bond Market is proving to be a higher risk-lower yield investment.

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If the Bond Market is proving to be riskier, oil prices are at an all time high and rising, Wall Street is in a state of confusion with inflation fueling up, where should you look to put your investment dollars? Investors want to diversify away from traditional markets that have become shaky and not providing acceptable returns or security. Investments in High Yield Income Funds and trust deed investments are gaining strength. Fractionalized investments are attractive, but investing through a fund can provide more benefits than an individual trust deed. These benefits include diversity (particularly relevant in a down stock market), relative liquidity, and possibly the option to compound your monthly payments.Benefits of investing in the High Yield Income Fund (trust deed investments) include:
- Diversification - your investment risk is spread over multiple loans
- Investment Performance - anticipated high yields (10% +, but past performance does not guarantee future results)
- Fully Invested - your investment remains fully invested at all times
- Compound Interest - you have the ability to reinvest some or all of your monthly interest thus taking advantage of the benefits of compounding the return

7 Things you should know about trust deed investments through a Mortgage Pool.

Investor Qualifications for the High Yield Income Fund (trust deed investments):
- Investors have to be bona fide California residents or foreign nationals living abroad
- Investors must have a net worth (excluding home and automobiles) of at least $250,000 and an annual income of at least $65,000 or a net worth of $500,000 (excluding home and automobiles)

LJL Funding, LLC is positioned to capitalize on over $30 billion in first trust deed home loans that have a minimum of 40% in protective equity. Their unique operational and wholesale business model with reduced overhead utilizes a tested home valuation process. LJL Funding, LLC recommends that twenty percent (20%) of a long term investment portfolio should be in trust deed investments.

Sign up on the web site to receive Johann de Villiers’ free weekly “10 Minute Economic Update Newsletter” - a weekly briefing of what is happening in the economic markets. Each week you receive a quick overview on the economic markets, along with a brief overview of the impact it has on trust deed investments and high yield income investment marketplace. Also as an added bonus, see how you can earn great returns by downloading the free educational series, “7 Things you should know about trust deed investments through a Mortgage Pool.”

Investment in the LJL Secured High Yield Income Fund I, LLC is available only to California or International residents meeting certain eligibility requirements. This is not an offer to buy or sell securities. Sales of this Fund are made by Offering Prospectus only. Membership is available under a permit by the California Department of Corporations. Investors should review the Offering Prospectus, Operating and Subscription agreements, the Fund’s investment objectives, risks, charges and expenses carefully before investing or sending money. This and other important information can be found in the Offering Prospectus, Subscription and Operating Agreements available by calling or by downloading from our website at LJLFunding.com/fund. LJL Funding, LLC is a member of the Mortgage Bankers Association.

The commissioner of corporations of the sate of California and the California department of real estate do not recommend or endorse the purchase of these securities.

The week before last ended with gloom in light of the impending nationalization of Freddie Mac and Fannie Mae (political jargon for “we the taxpayers will pick up the check”). The Bush administration extended a $300 billion lifeline to the endangered species of mortgage providers; placed limits on short selling activity and the market responded extremely positively. In addition the market was helped by a smaller than expected loss from Citibank; homebuilding activity (excluding a statistical blip as a result of legal wording changes in New York City) dropped to its lowest level since 1991 and Freddie Mac even registered its stock with the SEC in anticipation of raising good old fashioned equity from the market now that it’s share price has responded positively.

Expectations were that the market bottomed following the Bear Stearns bailout in February only to be dashed when the test of the February lows in July failed with new lows being established. Now the euphoria may be that the Freddie Fannie bailout may have been the bottom. It may well have been, we will know when the inevitable test of these lows are concluded in the foreseeable future.

In the meantime conservative, well defined with risk properly analyzed investment strategies may still provide investors with above average positive investment returns.

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The financial markets are essentially driven by two emotions – fear and greed. Greed induces rational people to make irrational decisions such as extending credit secured by a fixed asset to the total value and in some cases in excess of the asset value even after the value of the collateral started falling. Greed lets decision makers turn a blind eye to misstated assets, income and even the value of the collateral.  On the other hand fear convinces investors to dump their shares in companies such as Fannie Mae and Freddie Mac, making it virtually impossible to raise needed capital in the open market. Fear leads to depositors creating a run on the bank, guaranteeing failure of the bank even though most depositors are guaranteed by the FDIC. Before we now all succumb to the flavor of the time – fear – let us consider the facts:

• The total mortgage foreclosure rate is now around 1% of outstanding mortgages.
• Although Freddie Mac and Fannie Mae own or have insured $5 trillion in mortgages, the only problem are those borrowers who are not paying.
• Banks are learning that the best way out is to negotiate a deal with the owner occupant of the house, a program HSBC has been successfully implementing for some time.
• The demand for distressed loan portfolios and bank real estate owned (REO’s) from large investors such as hedge funds appear to be quite strong.
• The Government (i.e. the taxpayers, you and I) will now be forced to step in and secure Fannie Mae and Freddie Mac.  This is not all bad news because we all enjoyed higher home prices (still much higher than in 2000), cheaper interest rates, greater consumer spending and higher tax rolls supporting higher local authority spending. Now we have to give back some profit.

The strength of the free enterprise system is that it ultimately washes out excess at the top and rewards those prepared to look at the reality rather than the fear based emotion at the bottom.

We can be well advised to think about the words of Franklin D Roosevelt:

“We have nothing to fear but fear itself.”

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As we are now in an official bear market, as far as the stock market is concerned, gloom and doom should abound. During such periods savvy investors also seem to find great buying opportunities. Those investors generally recognize that one will probably not spot the exact bottom, so a steady investment program would allow for the concept of “dollar cost averaging” to even out the cost of an investment around the bottom price. On the real estate front the numbers of houses sold are edging up, prices are still declining  but at a slower rate, there appears to be great interest in buying distressed portfolios of both debt and real estate and Bank of America has closed on its acquisition of Countrywide, the nation’s largest mortgage originator. There is clearly a light at the end of the tunnel and it does not look or sound like an oncoming train.

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Inflation expectations and actual inflation around the world in developed and emerging markets are the highest it has been in decades. The fear of inflation is well founded when one considers the late 1970’s and early 1980’s when inflation got out of hand.  As with all economic events, no two events are ever exactly the same with the result that the rapid interest rate increases in the 1980’s, that subdued inflation may not be the required medicine in 2008. A significant increase in interest rates may just push the economy into a recession, at a time when actual inflation is still relatively low. Mr. Bernanke’s earlier remarks that inflation was indeed a bigger risk than a recession which led to a strengthening of the dollar and a reduction in oil led commodity prices (the main driver of current inflation), was negated by the Fed’s inaction on interest rates this week.  The markets reacted in a manner that could have been expected – oil and other commodities up, dollar down and stock market down!

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On Friday we experienced quadruple witching hour – the day on Wall Street on which contracts for stock index futures, stock index options, stock options and single stock futures all expire. Large investors generally unwind complex financial positions and reposition their portfolios for the next quarter. This can be a day of extreme volatility and a day that gives technical stock market analysts gray hair as new highs or lows or anything in between do  more often than not give no true reflection of the condition of the market.

For the year (one week shy of the first half) the stock market is down between 9% and 11% depending on the index of choice.  And the end may not be in sight, market capitulation often signifying a bottom, may well have occurred in the financial and housing sectors, but the rest of the market  does not appear to capitulating and stock market investors may well have to endure continuing uncertainty and volatility before a clear direction emerges.

The economic pundits now seem to acknowledge that the economic slowdown may not be as catastrophic as once predicted and, with increasing inflation, the Fed may well start raising interest rates. Higher interest rates may also not be an end times event as it may well strengthen the dollar, assist in deflating the oil led commodity price bubble, leading to more diversified consumer spending and by in large a healthier economy.

The fact that housing starts have now fallen 60% from their highs – a number that twice before, in 1972 and 1986 signaled the end of the market decline – may well confirm that the worst may be over and that we could expect home price declines to slow and even flatten out for an expected period of sideways movement as the large inventory is being absorbed.

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