Source: CNN Money

The Fed poured $41 billion into the United States financial system to keep operations in the financial markets running smoothly. The infusion came after the Fed issued another interest rate cut, the second in just six weeks in response to the collapsing housing market. The Fed cut a 1/4 point from the federal funds that will now be at 4.50%. The Fed hopes that the 1/2 point cut in September along with this weeks 1/4 point cut will be enough of a cut to help the economy get through rough times in the near future due to the housing market decline and credit crunch.

The Fed hopes it’s actions will keep the financial markets running smoothly and help until the market stabilizes. The infusion comes from the Federal Reserve Bank in New York that heads the Feds open market operations. Fed officials caution that it will still take time for the credit situation to improve but that the interest rate cuts and $41 billion will help the market get through rough times for now.

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Source: Pacific Business Journal (Honolulu)

Many experts in the commercial real estate sector are predicting slowing in 2008 that will correct the commercial market. The slowing has been called a “healthy correction”. Long-term investors will most likely not be affected by the slowing in 2008 but it will affect short-term investors and those who have over leveraged in the commercial market.

This comes from a recent report released by the Urban Land Institute and PricewaterhouseCoopers LLP. Many experts in the commercial industry predict that in 2008 capitalization rates will increase and risk prices to change. Although the market will adjust and slow a bit the commercial market is still predicted to outperform the stock market. Some of the positives will come from adjustments in the commercial real estate market include: establishing balance in supply and demand, filtering out low-quality commercial investors, stabilizing development but curbing current over development.

The commercial market has been busy and moving along for years now but there are some who have invested too much and stayed in it too long. These are some of those that will be affected by slowing in 2008 but long-term investors with moderate investments will likely be unaffected.

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Source: St. Louis Business Journal

The Chief Economist for the Associated General Contractors of America, Ken Simonson, has looked at statistics from the United States Bureau of Labor and Statistics and says that construction jobs have been growing during the past year. Despite the housing market crumble, nonresidential construction jobs have increased by nearly 42,000 jobs this year according to statistics. The nonresidential construction sector is boosting the economy despite heavy losses and declines in the housing sector.

Despite an overall decrease of 40,000 in construction jobs during the month of September were down, nonresidential building, specialty construction jobs, and civil engineering have grown by almost 1% or roughly 42,000 jobs over the year. Many predict that the commercial market will slow in 2008 and this growth could taper off and even decline.

Simonson said that he expects reductions and declines soon in several sectors. Office, retail and hotel construction will slow he predicts. However, Simonson says he sees other sectors experiencing growth such as energy, power, and hospital sectors.

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Source: Birmingham Business Journal

A recent survey conducted by Washington-based Guidant Financial Group revealed that among self-directed IRA holders real estate is still the #1 consideration for investment. The survey asked 1,000
IRA holders, all self directed investors and 65% indicated that they are considering real estate as the top sector to grow their fund. This comes as a surprise as the real estate market is in turmoil and decline and many are getting out.

The top real estate investments considered among respondents are:
- 60% rental properties
- 36% foreclosures and pre-foreclosures
- 28% raw land

This study showed important insights into the minds of some investors. Despite the turmoil and decline in the housing market, many feel that is secure enough to make some investment in. This could be helpful in helping the real estate market.

After real estate the following were investment considerations respondents are considering:
- Tax liens and deeds 29 %
- Business/franchise 22.8 %
- Hard money lending 22 %
- Notes 19.3 %
- Vacation property 19 %
- Foreign investments 10.4 %
- Securities 7 %

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Source: Bloomberg News

Four Fed Bank Presidents let investors know not to count on another Fed interest rate cut in October. Many have already criticized the Fed for the ½ point cut on September 18th as bailing out investors. Now Fed Bank Presidents are warning investors not to count on another decrease. The Federal Open Market Committee will meet again on October 30-31. Many traders are already indicating that they are planning on another rate cut next month by the Fed by another ¼ point.

In an event hosted by Market News International, St. Louis President William Poole said that the Fed will keep the economy “on a track of moderate average growth and gradually declining inflation over the next few years.” Furthermore, Poole said, “It was evident that we had a lot of turmoil in markets. We needed to help the market as best we could… The 50 basis-point cut …was necessary.” The Fed has expressed concern over unemployment and inflation and feel that instability in the economy makes the situation fragile. The Fed will discuss in their next meeting target inflation rates and attempt a gradual moving of the economy towards the target rates. “It would be a mistake for markets to bake into the cake the assumption of ongoing rate cuts,” Poole said.

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Source: Bloomberg News

For the first rate cut since 2003 the Fed cut interest rates of the central bank to 4.75. The _ point cut was higher than expected. Although most speculated a cut of _ or _ point, the selection of the latter came as a surprise to many. Some criticized the cut as bailing out investors however most agree that an interest rate cut was necessary to help the declining housing and commercial markets.

The Federal Open Market Committee said in a statement: “Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets” and that the central bank will “act as needed to foster price stability and sustainable economic growth.”

The decline of the housing market has tightened the credit market and many feared that the economy was heading towards a recession. With the rate decrease comes the hope that tension will ease and people will spend more. Many see the move by the Fed as preemptive and very much aimed at avoiding a recession while attempting to increase economic markets. The credit crunch has largely been blamed at problems in the sub-prime mortgage market.

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Source: Tampa Bay Business Journal

Since the residential housing market peaked in 2005, current turmoil in the housing market has made the commercial market a little hazy. Many are holding on to land investments for a few years until the market increases in activity. Apartment land is still is demand and popular. Demand is lower now for large land developments since the slowing of the housing market, but some aspects of the commercial market are increasing in demand such as apartment land and some retail land space.

The industrial and office space commercial markets are doing well and in demand right now as well. Some import and export cost have declined which has aided the industrial sector. In the industrial sector the following areas are seeing growth:
customer packaging
document storing
advertising
food distribution
advertising

In the office sector smaller job increases and even job decreases are hurting that sector. This combined with increases in some class A office rental space has led to slowing in the office sector of the commercial market. Tight credit problems and the decline in the housing market are making it hard to predict what will happen to the commercial market. Some sectors are slowing and some are increasing but the overall picture is hard to paint.

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Source: Dallas Business Journal

Although a lot of attention is currently focused on decline in the housing market, credit market turmoil and slowing in the economy not all sectors are declining. Surveys from the Federal Reserve Bank in Dallas indicate that few outside of the housing market and lending market feel the pressures and volatility that the housing and credit market are facing. As the date the Fed will meet to discuss possible rate cuts approach many are predicting interest rates to be cut ¼ point and possibility a ½ point. Some housing developers have said that home loan terms are being changed mid deal because of the current unpredictability and instability.

Financial industry respondents to the the survey say that outside of the housing market their business with their clients is in good condition. Among retailers some have reported that they have received some delinquent payments due to the credit crunch. In the housing market reports are the financing for houses more than $500,000 is becoming harder to qualify for and get. Also home prices have dropped but demand is also lower and a crunch in the credit market isn’t helping.

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SOURCE: “The Economist”

The question was recently posed in ‘The Economist”; does the Fed’s recent interest rate cut mean a looser monetary policy? For those who missed it, the Fed lowered the discount interest rates from 6.25% to 5.75%. The discount rate is the rate at which banks can borrow from the Fed if they ever get in a pinch or bind. Designed in a way to discourage banks from using it, it’s more of an emergency measure. Banks are discouraged from borrowing money from the Fed because it’s an indicator that the bank cannot find another bank to borrow from, a possible red flag for insolvency. The discount rate is a whole point higher than the rate banks can usually borrow from each other.

With the current speculation in the market, the drop in the discount rates provides an easier way for banks to borrow and assure banks that the supply of money isn’t going away. Many analyze that the Fed will drop rates again in September and again in October.

The believed conclusion is: “The less charitable interpretation is that the central bank has softened the penalty for banks that have funded purchases of very illiquid assets with short-term paper. If it loosens policy while markets are only in the early stages of adjusting and before the economic risks are real, it will seem like a reward for banks and hedge funds that took on too much risk.”

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SOURCE: Buffalo Business First

A new program is being launched to encourage U.S. banks and commercial lenders to lend to businesses in Latin America. The U.S. Treasury Secretary Henry Paulson Jr. announced the program as a way to show support for neighboring countries and strengthen the region economically.

Latin American businesses suffer from difficulties in securing forms of financing and funding. Only 10% of businesses in Latin America currently have access to loans and funding through banks and commercial lenders. There are many businesses in Latin America that lack the collateral usually required to qualify for loans. Many of Latin America’s small businesses lack financial statements and collaterals that in the eyes of U.S. banks and commercial lenders makes lending to them a risky proposition.

The program is working with Multilateral Investment Fund of the Inter-American Development Bank to develop a $50 million program to bring much needed money for loans to Latin American businesses. The Overseas Private Investment Corporation is making loan guarantees, including guarantees on local currency.

“The U.S. acts in our own and, we believe, the region’s best interest when we help neighboring nations build open economies and create opportunity for all their people,” said U.S. Treasury Secretary Henry Paulson Jr.

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