-- Posted Thursday, 30 August 2007 | Digg This Article
US MARKETS
The stock market may be going up, but the financial turmoil is far from over. The real estate market is far from the bottom in most of the former 30 hot areas. Homeowners are mostly in denial except, of course, those who are losing their homes. Defaults and foreclosures will continue for at least another 2-1/2 years as loan payments rise.
The hedge fund and derivative losses haven’t even begun to be counted and the exodus of investors has just started. The masters of the universe have been brought down to ground level as their formulas for credit derivatives collapse. The loses have been extensive and they will worsen.
The so-called smartest people on Wall Street are shutting down their subprime mortgage operations at great costs financially, as well as in loss of personnel. Last seen some 130 mortgage companies have gone under and these were major players. There have been 40,000 layoffs and 25,000 of those in August. Construction companies say they have laid off 20,000, but fail to mention the 200,000 illegal aliens they have already dumped who were never on the books. Realtors are jumping ship by the thousands and we see the biggest increase in late loan payments since 1990. All as we have predicted long ago.
The market for homes has a dilemma. No financing to speak of for subprime and ALT-A loans. No one, at least for now, will buy the loans. On the other end of the scale are few jumbo loans because they are not guaranteed by Fannie Mae and Freddie Mac. What are left are quality loans under $417,000. The housing market is operating on 2 cylinders, not on 8 anymore. The light is a long time from appearing at the end of the tunnel. Liquidity for the most part is gone and interest rates have risen in spite of lower yields on 10-year US Treasury notes, upon which mortgage rates are typically based. Those higher rates inhibit purchases of higher priced houses. As this transpires, lenders want 10% down and very good credit. Most buyers have no savings. How pray tell can they come up with $62,000 to buy an average home in Orange County, California for $620,000? Can you imagine, as well, they must have decent credit? What is this world coming too?
Growth in America is going to be radically curtailed. The real estate, housing and peripheral industries make up 25% of the economy and made up 50% to 63% of GDP growth over the past five years.
This is serious and it is getting worse. The “experts” now believe we may have a recession. How can they not miss the fact that one started 1-1/2 years ago? These same experts cannot believe that the housing industry is having the delinquencies, foreclosures and the disappearance of equity that it is experiencing. Where were these experts – hiding in a cave somewhere for the past 2-1/2 years? It was there for all to see. Of course, they saw this coming, but couldn’t say so, they would have lost their jobs.
As our government, Wall Street, corporate America and our Goldman Sachs Treasury Secretary tells us the real estate and construction collapse and credit crisis won’t affect our economy and the world economy. John Lipsky, number two at the IMF says, “These events will undoubtedly dampen growth. A number of financial institutions that have been affected most strikingly have not been US-based.” This is a systemic world problem. Contrary to what we are hearing from our controlled media he warned, “that there would be no quick end to the end of turmoil because of uncertainty as to how much damage it would do to growth, stating this will create a feedback loop that means it will take some time for markets to restore a normal amount of volatility. We are finding that in some cases regulated financial institutions are carrying off-balance sheet risks that have indirect implications for the institutions.”
Credit and equity problems may be increased by emotion and fear. The underlying systemic problem is fundamental now accompanied by lack of confidence in the system. Even bankers worldwide are upset having been defrauded in their purchases of mortgage and other asset backed bonds. There is absolutely no question the housing and construction recession will cripple the US economy in every way.
We still question Goldman’s prediction of a ¾% lower prime rate by yearend. Massive weakness hasn’t reared its ugly head yet, yes, we are in recession, but is it bad enough to cut rates and sacrifice the dollar? The market is rising again based on projected lower interest rates, but the dollar is falling again as well, headed toward 80 and probably testing it this week. Our guess is the interest rate at the discount window for big banks only will be lowered again in September an additional ½% to 5-1/4% in the fed’s next move. The Fed is trying to boost confidence and that is going to be a very hard sell after just having been bagged by the Fed and US banks and investment banks.
We believe that if the Fed lowers the prime rate the game is over. The dollar will collapse in probably 2 or perhaps 3 stages to go to wherever it is headed. That not only will cripple the US economy, but the world economy as well. America by far is the biggest market in the world. We have already resumed a bear market that was interrupted by manipulation five years ago. The temporary respite created by the housing boom is over and the financial prices to be paid will be prohibitive. The markets are headed down, as are all economies. Our only question is just how bad will it get? No on knows yet, but we do know we will have higher inflation and gold and silver related assets will move higher and probably much higher. Get on board, because if you do not do so, you could have few assets left five years from now.
The mint has issued a new coin without ‘In God We Trust’. We recommend that you refuse to use the coin and ask Congress, which wasn’t consulted, to have the coins withdrawn from circulation.
The largest contributions from military veterans have gone to Ron Paul. His nearest challenger was John McCain with 50% less funds. What is astounding is that Ron Paul has been against the war and occupation from the beginning. Obviously many of our vets understand the war is a scam for profit.
If the Fed is waiving a fundamental principle in banking regulations, the credit crunch must still be sapping the strength of America’s biggest banks. If that is so the small banks have to really be hurting.
Citigroup and Bank of America state that the Fed, which regulates large parts of the financial system, has agreed to exempt both banks from rules that effectively limit the amount of lending that their federally insured banks can do with their brokerage affiliates. The exemption means they can provide liquidity to those holding mortgage loans, mortgage backed securities and other securities. That also frees up liquidity to follow orders from the “Working Group on Financial Markets to engage in market manipulation.
GOLD, SILVER, PATINUM, PALADIUM AND URANIUM
The mining stocks are bargains galore, but it won’t be that way too much longer Gold remains fundamentally sound and when compared to the fiat dollar it looks like the best investment ever.
India is witnessing the highest demand ever for gold this year. The strong rise in the rupee and rising consumer spending have raised India’s gold demand by 72% in the first half of the year. They will have bought 317 tons in the second quarter and probably 900 tons on the year.
Greg Wilkins President and CEO of Barrick Gold says, “The industry has struggled from a lack of investment. It is fine to talk about great gold prices for the last couple of years, but the Bank of England tried to put the gold mining industry out of business back in 1999 and there was very little adjustment for many years.”
He refers to Gordon Brown’s sales of gold between 7/99 and 3/02 of 395 tons sold at about $275.00 an ounce. What he doesn’t tell you is that Barrick was working with the central banks to suppress prices. This is why Barrick was created in its present form. Just more lies.
The verdict is now in. After dismal real estate reports on Monday and Tuesday, the US real estate market was weighed in the scales and found wanting. Markets reacted worldwide, and on Tuesday, all the shock-absorbing 300 point puffery blown into the Dow by the PPT last week evaporated in a single day as the Dow went down in flames to the tune of 280 points, closing at 13,041.85. The US markets looked anemic on Monday following news that the inventory of unsold single-family homes had reached a 15-year high at 9.2 months of supply per the National Association of Realtors. The markets gave up the ghost on Tuesday as S&P/Case-Schiller quarterly index showed a 3.2% rate of decline in home prices in the second quarter, making it the highest rate of decline in the 20 year history of the index. Now mind you that these figures are for the second quarter, before the credit crunch became full-blown, so you can imagine what the future holds for this real estate data. Adding insult to injury, the Conference Board Consumer Confidence Index released on Tuesday plummeted from 111.9 to 105, so there goes consumer spending, which is the backbone of not only our economy but those of China, Japan and Asia as well. The Fed's comments from their latest meeting did not mention a cut in the Fed funds rate, a terrible disappointment to the stock markets which drove them even lower, so you can see that a further cut in the Fed's discount rate will be met by scornful laughter from Wall Street.
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