12-31-05

   Now that we have a new Fed Governor, Burnanke, lined up to follow Greenspan, the general feeling is that they will raise interest rates in January and then they will take a break. Now that the economy has survived the war, storms and energy prices, it's time to take the foot off the brake.

   An interesting thing has happened this week; the Interest Rate Yield Curve is inverted. That means that short term rates are actually higher than the long term rates. This is just the opposite of what you would expect. The two year T-Bill is higher in yield then the 10 year T-bill. Now, in the past, this has signaled a recession in the near future, about 7 out of the last 10 times when this unique event has occurred. Most experts don't believe that we are headed for a recession. What the Fed does in the next three months will certainly influence the chances of a recession. I don't believe we are headed that way right now. Corporate profits are strong, unemployment is low, mortgage rates have come up, but historically they are still low, and energy prices have finally subsided.

   The real estate market has peaked. Just when everyone said it was going to bust, it instead just fizzled out. As I said last quarter, this wasn't so much for a lack of demand as an increase in supply. Everyone up and down the street heard how much their neighbor sold their house for and decided to get in on the easy money. We are now back to what most would say is the average amount of houses for sale. The houses are staying on the market longer and the price increases aren't as dramatic as they were just a few months ago.

   The 4th Quarter brought in $500k of new investor monies. I now have $9.1 million in the portfolio. You may remember my goal was to be at $10 million by year end. I didn't quite make it, but I'll set a new goal of $12 million for 2006.

   The demands for money have slowed through the holidays a bit, but that is typical. From November 20th until January 5th, not many people are moving. I've kept all the money working and I have a number of loans lined up for the first of the year. I fully expect to see demand rebound once the new year has passed.

   In 2006, I believe the market will return to what I've experienced in past years, save 2005, and it will be a strong market, but not a nutty one. Everyone I'm talking too, while they enjoyed the past year or more of this over zealous market, they are glad that it's over. The stupid money was made in 2005. The smart money will be made in 2006.

   I have updated the pictures of the current properties on the site. Thanks for your trust, investment, and referrals.

   Denny J. Chittick