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We predicted “the U.S. housing bubble will burst” all through 2005 when just about
everybody on Wall Street and the mainstream media were predicting continued growth and
blue skies ahead for the housing market. Clearly, we have made
ONE OF THE MOST SPECTACULARLY SUCCESSFUL MARKET CALLS OF THIS DECADE! This week’s
events further proved the amazing accuracy of our predictions as seen from the following:
1) The National Association of Realtors reported that existing home sales fell to a
seasonally adjusted annual rate of 5.5 million in August, representing a 12.8% year-overyear
decline in home sales. Inventories of unsold homes rose to a 18-year high with 4.58
million properties now sitting on the market without any takers,
2) The Commerce Department reported that sales of new single-family homes fell 8.3% in August to a 795,000
annualized sales pace. That represents a 21.3% year-over-year decline in new home sales!
To make matters worse, the median sales price of a new home fell 7.5% in August to
$225,700, reaching its lowest level since January 2005. That’s the biggest year-over-year
decline in new home prices in 37 years and that price does not even include the huge nonmonetary
incentives (free swimming pools, Caribbean vacations, kitchen and patio
upgrades, etc.) that most U.S. homebuilders now routinely offer as part of their efforts to
reduce near-record levels of unsold home inventories,
3) The latest reading of the S&P/Case-Shiller home price index representing prices in 10 major U.S. cities showed a
4.5% year-over-year decline. According to this index, that’s the steepest drop in home
prices in 16 years!,
4) Lennar Corp. (the biggest U.S. homebuilder in terms of revenue)
reported a net loss of $514 million in its fiscal third quarter and announced it will continue to
cut its work force through the remainder of this year. Lennar’s CEO Stuart Miller warned
“Heavy discounting by builders, and now the existing home market as well, has continued to
drive pricing downward.” Similarly, another big homebuilder KB Homes reported a third
quarter loss of $479 million from continuing operations and its CEO Jeffrey Mezger said
“We expect housing industry conditions to continue to worsen through the end of the year
and into 2008.” Both builders reported increases in cancellation rates indicating a rapidly
shrinking pool of potential home-buyers,
5) The Mortgage Bankers Association reported that mortgage application volume fell by 2.8% in its latest weekly report. Mortgage applications
for home purchases fell 8.3% as the average interest rate for traditional, 30-year fixed-rate
mortgages increased to 6.38% from 6.29% in the prior week,
6) Two major U.S. retailers
(Target Corp. and Lowe’s Co.) warned of a slowdown in sales and earnings due to the
‘uncertainties’ posed by the housing slump,
7) The International Monetary Fund warned last
week that the U.S. housing and mortgage crisis will have a “far-reaching” impact on the
global economy. According to the IMF, “Downside risks have increased significantly and
even if those risks fail to materialize, the implications of this period of turbulence will be
significant and far-reaching,” and
Ex-Fed Chairman Alan Greenspan seems to have
turned into a housing bear as he reportedly told an Austrian magazine last week, “So far,
home prices have dropped only slightly. But it was enough to cause alarm around the world.
Prices are going to fall much lower yet.” Hmmm…it sure looks like Mr. Greenspan has also
started reading the Capital Multiplier newsletter now. So what are you waiting for Big Ben?!
Given all of the above, it’s no surprise that some on Wall Street have now started whispering the R word (Recession). Indeed, the 35% drop in year-over-year housing starts, the precipitous drop in
the NAHB homebuilder sentiment index, the inversion of the yield curve last year, the rise in the unemployment rate, the 10% drop in year-over-year auto sales, the biggest slide in U.S. home
prices since the Great Depression, surging lay-offs in the construction and financial services industries, etc. are all tell-tale signs of a rapidly deteriorating economy that may already be entering
recession! So we believe investors should now start thinking about the B word, as in Bear market. That’s because just about every U.S. recession in the last 100 years has been preceded by (or
accompanied by) a significant correction or bear market. Obviously the main reason why almost no one on Wall Street is talking about a Bear market is because the S&P 500® is currently just 1%
below its all-time high! But all that could change in a hurry if the market receives any negative ‘surprise’ in coming days. Keep a close eye on China, India, $USD, Oil and long-term interest rates…
We have repeatedly warned in our reports, that the entire world economy has been enjoying an unsustainable and artificial economic boom due to a global credit bubble. Ultra-loose monetary
policies by global central banks and irresponsible lending practices by global financial institutions have created unprecedented bubbles in global stock, bond and real estate markets. Besides
causing high levels of inflation all over the world, these policies have also created unprecedented levels of systemic risk as the total debt burdens of households, corporations and governments
worldwide have reached mind-boggling levels. Add to this potent mix, Wall Street’s penchant for creating complex financial derivatives backed by debts of dubious credit quality and combine that
with the asinine willingness of global banks, hedge funds, insurance companies and pension funds to buy Trillions of dollars of that toxic waste and you have a recipe for a Global Financial Crisis!
everybody on Wall Street and the mainstream media were predicting continued growth and
blue skies ahead for the housing market. Clearly, we have made
ONE OF THE MOST SPECTACULARLY SUCCESSFUL MARKET CALLS OF THIS DECADE! This week’s
events further proved the amazing accuracy of our predictions as seen from the following:
1) The National Association of Realtors reported that existing home sales fell to a
seasonally adjusted annual rate of 5.5 million in August, representing a 12.8% year-overyear
decline in home sales. Inventories of unsold homes rose to a 18-year high with 4.58
million properties now sitting on the market without any takers,
2) The Commerce Department reported that sales of new single-family homes fell 8.3% in August to a 795,000
annualized sales pace. That represents a 21.3% year-over-year decline in new home sales!
To make matters worse, the median sales price of a new home fell 7.5% in August to
$225,700, reaching its lowest level since January 2005. That’s the biggest year-over-year
decline in new home prices in 37 years and that price does not even include the huge nonmonetary
incentives (free swimming pools, Caribbean vacations, kitchen and patio
upgrades, etc.) that most U.S. homebuilders now routinely offer as part of their efforts to
reduce near-record levels of unsold home inventories,
3) The latest reading of the S&P/Case-Shiller home price index representing prices in 10 major U.S. cities showed a
4.5% year-over-year decline. According to this index, that’s the steepest drop in home
prices in 16 years!,
4) Lennar Corp. (the biggest U.S. homebuilder in terms of revenue)
reported a net loss of $514 million in its fiscal third quarter and announced it will continue to
cut its work force through the remainder of this year. Lennar’s CEO Stuart Miller warned
“Heavy discounting by builders, and now the existing home market as well, has continued to
drive pricing downward.” Similarly, another big homebuilder KB Homes reported a third
quarter loss of $479 million from continuing operations and its CEO Jeffrey Mezger said
“We expect housing industry conditions to continue to worsen through the end of the year
and into 2008.” Both builders reported increases in cancellation rates indicating a rapidly
shrinking pool of potential home-buyers,
5) The Mortgage Bankers Association reported that mortgage application volume fell by 2.8% in its latest weekly report. Mortgage applications
for home purchases fell 8.3% as the average interest rate for traditional, 30-year fixed-rate
mortgages increased to 6.38% from 6.29% in the prior week,
6) Two major U.S. retailers
(Target Corp. and Lowe’s Co.) warned of a slowdown in sales and earnings due to the
‘uncertainties’ posed by the housing slump,
7) The International Monetary Fund warned last
week that the U.S. housing and mortgage crisis will have a “far-reaching” impact on the
global economy. According to the IMF, “Downside risks have increased significantly and
even if those risks fail to materialize, the implications of this period of turbulence will be
significant and far-reaching,” and
Ex-Fed Chairman Alan Greenspan seems to haveturned into a housing bear as he reportedly told an Austrian magazine last week, “So far,
home prices have dropped only slightly. But it was enough to cause alarm around the world.
Prices are going to fall much lower yet.” Hmmm…it sure looks like Mr. Greenspan has also
started reading the Capital Multiplier newsletter now. So what are you waiting for Big Ben?!
Given all of the above, it’s no surprise that some on Wall Street have now started whispering the R word (Recession). Indeed, the 35% drop in year-over-year housing starts, the precipitous drop in
the NAHB homebuilder sentiment index, the inversion of the yield curve last year, the rise in the unemployment rate, the 10% drop in year-over-year auto sales, the biggest slide in U.S. home
prices since the Great Depression, surging lay-offs in the construction and financial services industries, etc. are all tell-tale signs of a rapidly deteriorating economy that may already be entering
recession! So we believe investors should now start thinking about the B word, as in Bear market. That’s because just about every U.S. recession in the last 100 years has been preceded by (or
accompanied by) a significant correction or bear market. Obviously the main reason why almost no one on Wall Street is talking about a Bear market is because the S&P 500® is currently just 1%
below its all-time high! But all that could change in a hurry if the market receives any negative ‘surprise’ in coming days. Keep a close eye on China, India, $USD, Oil and long-term interest rates…
We have repeatedly warned in our reports, that the entire world economy has been enjoying an unsustainable and artificial economic boom due to a global credit bubble. Ultra-loose monetary
policies by global central banks and irresponsible lending practices by global financial institutions have created unprecedented bubbles in global stock, bond and real estate markets. Besides
causing high levels of inflation all over the world, these policies have also created unprecedented levels of systemic risk as the total debt burdens of households, corporations and governments
worldwide have reached mind-boggling levels. Add to this potent mix, Wall Street’s penchant for creating complex financial derivatives backed by debts of dubious credit quality and combine that
with the asinine willingness of global banks, hedge funds, insurance companies and pension funds to buy Trillions of dollars of that toxic waste and you have a recipe for a Global Financial Crisis!
