05/06/2011 The Bernanke Arbitrage – Increasing home equity exposure through FARJHO (SM) near the bottom of the residential market

An easy financial arbitrage could be established by current home owners who have paid off their original mortgages on their own properties, assuming they have some income sources to secure a new mortgage on their current properties. Alternatively, any homeowners who have existing excess home equity to do cash out refinance could also take advantage of these timely arbitrage investment opportunities.

With the current long term fixed rate mortgage level around 5%, the home owners could use that money to invest in another home as a partial owner, i.e. a JPI (Joint Property Investor) to help another AHO (Aspiring Home Owner) to own home. From the JPI’s perspective, he/she could earn around 6% almost guaranteed minimum annual income through the rental payments made by the AHO in a FARJHO (SM) deal. As a result, the JPI could sit on a small annual positive cash flows (6% – 5% = 1%) while increasing the long term capital appreciation potential from his/her stake in the FARJHO (SM) LLC member interests.

Wouldn’t this be a great “Bernanke Arbitrage” as an inflation hedge for average Joe home owners on Main Street while Bernanke and his crony Wall Street cohorts keep enjoying the money for nothing through the Fed’s near zero interest rate policy and repeated QE’s?

With the dollar depreciation and high inflation almost a certainty as the Federal Reserve continues their loose monetary policy, increased home equity exposure would very likely outperform most other financial assets in an inflationary scenario. Borrowing money from GSEs, guaranteed by FHA at 5% or even lower for the long term may not be as good a steal as many Wall Streets cronies get but it is indeed better than nothing.

Isn’t it time that the Main Street jump on the bandwagon to get even with Wall Street? If the elite minorities on Wall Street could get money for nothing and make themselves more and more obscene profits, why can’t average Joe try to do the same on Main Street, rather than sitting there waiting for bread crumbs falling off from the Wall Street riches?

Don’t get mad, get even. Main Street needs not jettison Capitalism and embrace Socialism to solve their problems. They need to stand up and learn more on how to make Capitalism working for them. The revenge of the nerds is coming!

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