With U.S. mortgage defaults up 90+% from a year ago, collapse of U.S. mortgage market is being felt around the world. U.S. housing starts have fallen to a ten year low, and are headed lower. Financial infrastructure that fueled this speculative bubble is being dismantled. Rate is important, but so is means of funneling money to borrowers. Mortgage financing system begins with mortgage brokers at front end. Mortgages then travel through layers of investment bankers till ultimately residing in portfolios of gullible investors around the world. That system is disintegrating through bankruptcies and layoffs. System that created the money flow from investors to housing is being dismembered. Less money will flow to housing market. Less money means lower prices. Given long-term nature of housing and collapse of financing mechanism, U.S. housing starts will fall 50% from current levels as sales stall.
Central banks around the world have been forced to provide emergency funding to financial institutions troubled by impaired holdings of U.S. mortgage debt. Germany, for example, seems to have a weekly problem. These central banks may look to their investment portfolios for funds to aid these institutions. For the past two weeks official institutions have been net sellers of U.S. government and agency debt.Should they be sellers this week, that would be three weeks in a row, which has not happened in two years. Collapse of U.S. mortgage market has burned many foreign investors They most likely will be forced to become net sellers of U.S. dollar debt. Dollar's structural bear market will continue as foreign investors shun and sell dollar debt. Gold is the only true refuge in such an environment.
GOLD THOUGHTS are from Ned W. Schmidt,CFA,CEBS, publisher of The Value View Gold Report, monthly, and Trading Thoughts, weekly. For a subscription go to http://home.att.net/~nwschmidt/Order_Gold_EMonthlyTT.htmlNed will be exploring the Gold Super Cycle at The Wealth Expo in NYC, 19-21 October. For information go to www.wealthexpo.netTo receive a copy of the new Agri-Food Value View, an exploration of Agri-Food Super Cycle, write agrifoodvalueview@earthlink.net
Ned W. Schmidt, CFA CEBS is publisher of THE VALUE VIEW GOLD REPORT - Coverage of the emerging GOLD SUPER CYCLE. Explores the situation in Gold that may carry it to $1,225. To subscribe Click Here. A trial period is available by Clicking Here
Ned W. Schmidt, CFA CEBS is a nationally recognized authority and speaker on a variety of investment topics, including value investing and global capital flows. Currently, Ned is Resident of Schmidt Management Company in DeLand, Florida, specializing in financial engineering. The firm’s proprietary research influences about $15 billion in assets, and is investment advisor to the Argyle Global Equity Appreciation Fund.
Most recently Ned served as the Visiting George Professor of Applied at Stetson University where he taught institutional money management. Preciously he had been a Senior Vice president with a trust company where he had the responsibility for discretionary investments of $3.5 billion.
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