Sean Crowley

So in the last several days there have been the following major developments:

• The Treasury crafted a plan in which it would buy $700 billion worth of mortgage backed securities from financial institutions;
• The SEC has placed a temporary ban on short-selling 800 financial institutions;
• The Fed has approved Morgan Stanley and Goldman Sachs becoming bank holding companies; and

• Morgan Stanley is selling a 20% stake to Mitsubishi for $8.4 billion;

So what does this all mean in general? Here are our thoughts:

• The Treasury will pay more than market value for the securities they buy and the taxpayers will take a bath. But there is no going back at this point without a collapse of the system;
• The short-selling ban is necessarily distorting prices and will not last long;
• Goldman and Morgan will buy other banks, become much less leveraged and begin to mimic BofA and JP Morgan Chase;
• The Mitsubishi purchase does NOT mean we will see a huge resurgence from Japan.

What does this all mean for Maui real estate?

• The mortgage business will steady out and look the way it did ten years ago;
• The stock market will stop seeing the jarring volatility that has been spooking buyers; and
• Thankfully, this has all happened during the slowest part of our season in any case

So what do the events of the past week mean for Maui real estate? First, let's recap the major events:

-Fannie Mae and Freddie Mac placed under Federal Receivership
-Lehman declares bankruptcy then sells a major portion of its operations to Barclay's
-AIG trades an 80% interest for an $85 billion loan and Federal Control
-Merrill Lynch sells out to Bank of America
-Wall Street Firms organize a $70 billion credit facility for one another
-Federal Reserve injects over $70 billion in liquidity into the bond market
-Dow Jones Industrials were off 450 points on Wednesday
-Reserve Money Market Fund, viewed as incredibly safe, "breaks the buck" and halts withdrawals
-Morgan Stanley is clearly in serious trouble and is likely to be sold as is WaMu
-Goldman Sachs may not survive as an independent entity either

The key problem causing this meltdown on Wall Street include the following:
-NOBODY is willing to lend money to financial institutions at the moment
-These firms have no ability to sell their troubled positions to raise capital either without effectively bankrupting themselves
-The companies being targeted by short-sellers have no extra capital to buy their own shares and combat what is going on

The liquidity problems in the bond market are likely to remain for a while here. It is also likely that further writedowns related to the mortgage business are coming all across the financial sector.

SO WHAT DOES THIS MEAN FOR MAUI REAL ESTATE?

In the immediate term, very little as this is the slowest part of the season in any case. But if this Wall Street situation persists for a few weeks it is going to mean mortgages will be increasingly hard to come by, that buyers are likely to "pull in their horns" on all discretionary purchases and that corporate America is also likely to become much more conservative on their expansion plans. This all increases the risk of a national recession, and certainly stokes the fear of one. All of this news is going to slow buyers down and make them feel less urgency regarding a purchase creating an even more advantageous environment for those buyers willing to act.

We will of course continue to keep you apprised.

The equity markets rocketed today after the Federal Government all but promised a bailout.

U.S. stocks rallied the most in six years on prospects the government will formulate a "permanent'' plan to shore up financial markets, while regulators and pension funds took steps to curb bets against banks and brokerages. Traders erupted into cheers on the floor of the New York Stock Exchange as the Dow Jones Industrial Average jumped 617 points from its low of the day after Senator Charles Schumer proposed a new agency to pump capital into financial companies. The Standard & Poor's 500 Index climbed 4.3 percent as 68 companies in the gauge rose more than 10 percent.

We believe this euphoria will be short-lived as the politics of something like this rear their ugly heads. But it has clearly bought some time for things to perhaps settle down. The liquidity in the bond market still stinks.

A friend of ours has shown us an information sheet their stockbroker sent them that we think has a couple of excellent insights for what is happening and what it will take to change it. Here is the key paragraph:

What we try to get is John Templeton's advice for success which is that bull markets are born on pessimism; what we try to get is Warren Buffet's maxim to be greedy when others are fearful. This approach has required some patience and disappointment, as we have had to endure five waves of pessimism in the last year that seem to be culminating in the environment today, where the fate of the giants of Wall Street are changing from one minute to the next. Smart pundits can pinpoint exactly what is irrational about the process and the spiral of pessimism that can take these companies under, but it goes on in spite of this, because once that fear takes hold it takes something dramatic to shake some sense back into the environment.

The question is, of course, what will be the something dramatic? Today may have been the beginning of something, but by itself it isn't nearly enough.

Another dramatic day on Wall Street.

Stocks resumed their downward spiral Wednesday as even the Federal Reserve's $85 billion rescue of American International Group left investors unconvinced that the broader U.S. financial system is no longer in peril.The Dow Jones Industrial Average ended near a three-year low, down 449.36 points, or 4.1%, at 10609.36, off 7.1% so far this week. All 30 of the Dow's components fell, including a 45.3% drop in AIG shares. Among the blue-chip measure's other financial names, big losers included J.P. Morgan Chase, off 12.2%, and Citigroup, down 10.9%.

Goldman Sachs and Morgan Stanley are now being focused on by the bears in the market. The thinking seem to be that the traditional investment banking business model no longer works and that deposit base is necessary for financiall institutions. We would expect Morgan Stanley to be sold or to merge with a bank and it appears Goldman has to do something as well.

The big problem remains the freeze in the credit markets. Financial institutions simply cannot survive without liquidity and no one is comfortable providing it. These events are shocking and isn't over yet.

What is the impact on Maui real estate? At the moment who knows...but it isn't good.

We are pleased to announce the sale of Royal Mauian unit 115. This two bedroom, 806 square foot unit sold for $1.035 million. Yet another example of how well the Leading Edge Marketing System works in difficult markets.

The Royal Mauian unit 115 offers direct ocean front living in the heart of South Maui. When you enter this breezy, spacious two bedroom two bathroom condo you are immediately drawn to the living area and the spectacular ocean view. The ground floor location makes it easy to step out on to the grassy lawn for sun bathing or a dip in the pool. A quick walk takes you to one of South Maui's most beautiful sandy beaches for snorkeling and kayaking. At the end of the day, lie down and enjoy the ocean view from the master bedroom or watch the sunset from the covered lanai. This property makes it easy to enjoy the best parts of the Maui lifestyle without ever having to get in the car.