Technology Transactions
Mutual Fund Worries Could Impact Real Estate
Since March the stock market has largely risen, which is good news for most folks and some relief from the $5 trillion in losses suffered during the crash of 2000. The market is up, interest rates are low, unemployment may be ebbing -- conditions which suggest to James J. Cramer, cofounder of TheStreet.com, that the Dow could actually rise another 1,000 points by New Year"s Eve. Cramer -- writing in New York magazine (November 17th) -- is not thrilled by such a possibility, he worries that the aftermath of a "melt-up" could be a hideous decline. Why might the market substantially decline? To me, one reason that cannot be ignored is the failure to regulate Wall Street. This has become increasingly apparent and the growing mutual fund scandal can no longer be ducked. Essentially what has happened is this: Mutual fund prices are established at 4 PM EST. This means you know what the value of your shares are at the same time each day and that you cannot get a better or worse price until the market next opens -- unless you"re a fund bigwig and trade after hours. Trading after hours is a dream. Prices for everyone else are frozen. So if values are rising in Tokyo you can buy ahead of the opening and catch the advance. And if some sour company news is revealed after hours, no problem -- just sell at the 4 PM price before the market opens. The typical investor turns to mutual fund management because we expect professionals to know more than we do and thus outperform the market. Such faith justifies fees -- but performance does not: Many funds do no better than market averages and some do worse, especially after management fees are subtracted. People understand that there are no guarantees on Wall Street, but the new deal -- trading after hours by insiders -- is a huge scandal and you have to wonder what choices investors will now make. Some, certainly, will pull dollars from funds that receive the most headlines. But what will investors do next? The answers could profoundly impact real estate. If investors move money from troubled funds to those with honest management, that"s a neutral move. The dollars available to buy real estate remain unchanged. But if investors move from stocks to bonds that could impact real estate by leading to lower mortgage rates, astonishingly-good news for borrowers because today"s mortgage rates are already low by the standards of the past 40 years. If a significant number of investors simply say "enough" and move dollars away from Wall Street, then more cash will be available for downpayments and debt reduction, again good news for real estate. But before getting giddy about less interest in Wall Street, consider that the country needs a functioning and believable stock market. A huge sell-off on Wall Street could substantially reduce personal wealth and pension holdings, not good news for anyone, especially those trying to raise a downpayment or meet mortgage qualification standards. All markets require confidence, a general belief that certain inherent values exist. Remove certainty and there"s no reason why a pound of diamonds should be worth any more than a pound of peanuts. What is to be done? As a country we are very good at throwing the book at people who rob convenience stores. But we don"t do much in the case of billion-dollar frauds -- there are little fines and cute agreements that no one has admitted doing anything wrong. Consider the recent headlines concerning Wal-Mart, allegations that several hundred illegal workers employed by subcontractors were used by the company -- a firm with more than 1 million U.S. employees. Is this a big deal? Are your assets at stake? Yet magically there"s no shortage of investigators or effort on this one. Somehow all the papers seem to know about it. But billion-dollar stock frauds? Well the Securities and Exchange Commission has limited resources, and besides there are fine people who operate these funds. Unlike migrant workers -- who don"t make large political contributions -- we certainly can"t awake fund managers in the middle of the night or ask tough questions. Small stuff? Minor violations? Sure, work such things out quietly with perspective and a fine. But unfair trading that hurts millions of people and fundamentally damages the marketplace? Take it to court and let"s see what a jury thinks. For more articles by Peter G. Miller, please press here.RES Course Provider commented:
Real estate could be affected with the Mutual Fund process. I was looking for such an information. Thanks for this nice sharing.
07.04.2012