Tweet
Global economy entering A Perfect Storm!
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 ‘ever bullish’ National Association of Realtors has been forced to cut its 2007 forecast for sales of existing and new homes again! Back in February, the realtors group was predicting that existing home sales would drop by just 0.6% this year. Now they are forecasting existing home sales will be down 10.8%, and new home sales will plunge 23% this year!,
2) The Mortgage Bankers Association reported that mortgage application volume rose by 2.4% in its latest weekly report as mortgage applications for home purchases inched up 2.1%. That’s a rather pathetic performance given that this survey was taken several days after the Fed’s 50bps rate cut and subsequent rally in stocks. Clearly the pool of suckers willing to buy homes at these ridiculously over-valued prices continues to shrink despite the Federal Reserve’s desperate efforts to try and re-inflate the bubble,
3) According to the latest report from RealtyTrac Inc., U.S. foreclosures doubled in September compared to the
same period last year as 1 out of every 557 American households is now facing foreclosure!,
4) Mortgage lender Thornburg Mortgage announced it will be booking a biggerthan- expected $1.38 Billion loss on sales of loans and portfolio write-downs in the third
quarter,
5) Homebuilder Centex Corp. announced it will be taking a $1 Billion charge to write down the value of it’s land and other holdings and Centex CEO, Tim Eller described
the current housing market as “extremely difficult”,
6) Ellington Management LLC, a $5.2 Billion hedge fund group has halted investor redemptions from two of its funds because the firm is unable to value the subprime mortgage-backed securities held by those funds.
According to Ellington there has been little to no trading in many of these securities resulting in “enormously wide” bid/offer spreads and as a result they will be relying on estimates provided by Wall Street broker-dealers to calculate the net asset values of those funds. In
the absence of any significant trading in those markets, hundreds (maybe even thousands) of hedge funds are facing the same predicament and resorting to similar tactics to try and postpone their day of reckoning.
This is exactly the kind of ‘fanciful accounting’ that Warren Buffet was likely referring to when he famously said: “in the world of derivatives…mark-tomarket
can sometimes degenerate into mark-to-myth.”
We hereby repeat our warning:
Global financial institutions are most likely saddled with HUNDREDS OF BILLIONS OF DOLLARS in unrealized capital losses due to the U.S. mortgage debt crisis!
To counter the continuing bogus propaganda by Wall Street cheerleaders about “small single-digit percentage declines” in U.S. home prices, here’s another interesting story about how much housing prices have really crashed in the once red-hot Washington market:
Obviously, not all regions have suffered 20% price declines, but this story should be an eyeopener
for those who are still in denial about the accelerating plunge in U.S. home prices….
In major economic news, the U.S. government reported a $163 Billion budget deficit and warned of a looming “fiscal train wreck” due to unsustainable growth in entitlement spending (Social Security, Medicare and Medicaid) as 78 million babyboomers reach retirement in the next few years. To really understand the magnitude of that problem it might help to remember that the U.S.
federal debt burden has already exploded by $3 TRILLION in just the last 7 years and now stands at a mind-boggling $9 TRILLION! That’s more than the combined GDPs of Brazil, Russia, India
and China…the so-called BRIC economies, who the Wall Street cheerleaders claim will save the day for the world economy if the U.S. falls into recession. Believe that nonsense at your own peril!
We remain convinced that the inflationary asset price bubbles in the BRIC countries will burst in the near future and lead to HUGE LOSSES for domestic and foreign investors in those countries.
The ‘trigger’ could be a U.S. recession, the likelihood of which has increased significantly as the current housing recession leads to a significant drop-off in U.S. payrolls in coming months (as layoffs surge in the construction, financial services, home improvement, retailing and brokerage sectors).
That, combined with the ‘negative wealth effect’ of sharply declining home prices and another surge in foreclosures will negatively impact consumer confidence. Personal consumption expenditures which have so far held up surprisingly well even as the economic skies have gotten darker, will abruptly succumb to the realities of a weaker job market, tighter credit and an irreparably broken housing ATM! That will almost certainly impact sales and earnings at most small and mid-size U.S. corporations very adversely. Most large companies will also feel the pain but some sectors like pharmaceuticals and consumer staples may weather the downturn better than others.
Contrary to the bullish perception created by the marginal new highs in the stock indices last week, we believe the fundamental underpinnings of the U.S. economy are going from bad to worse…
Given all of the above, we believe the global economy is headed straight into A Perfect Storm that will culminate in sharp corrections and/or bear markets in global stock and real estate markets!
From the Capital Multiplier 13 October
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 ‘ever bullish’ National Association of Realtors has been forced to cut its 2007 forecast for sales of existing and new homes again! Back in February, the realtors group was predicting that existing home sales would drop by just 0.6% this year. Now they are forecasting existing home sales will be down 10.8%, and new home sales will plunge 23% this year!,
2) The Mortgage Bankers Association reported that mortgage application volume rose by 2.4% in its latest weekly report as mortgage applications for home purchases inched up 2.1%. That’s a rather pathetic performance given that this survey was taken several days after the Fed’s 50bps rate cut and subsequent rally in stocks. Clearly the pool of suckers willing to buy homes at these ridiculously over-valued prices continues to shrink despite the Federal Reserve’s desperate efforts to try and re-inflate the bubble,
3) According to the latest report from RealtyTrac Inc., U.S. foreclosures doubled in September compared to the
same period last year as 1 out of every 557 American households is now facing foreclosure!,
4) Mortgage lender Thornburg Mortgage announced it will be booking a biggerthan- expected $1.38 Billion loss on sales of loans and portfolio write-downs in the third
quarter,
5) Homebuilder Centex Corp. announced it will be taking a $1 Billion charge to write down the value of it’s land and other holdings and Centex CEO, Tim Eller described
the current housing market as “extremely difficult”,
6) Ellington Management LLC, a $5.2 Billion hedge fund group has halted investor redemptions from two of its funds because the firm is unable to value the subprime mortgage-backed securities held by those funds.
According to Ellington there has been little to no trading in many of these securities resulting in “enormously wide” bid/offer spreads and as a result they will be relying on estimates provided by Wall Street broker-dealers to calculate the net asset values of those funds. In
the absence of any significant trading in those markets, hundreds (maybe even thousands) of hedge funds are facing the same predicament and resorting to similar tactics to try and postpone their day of reckoning.
This is exactly the kind of ‘fanciful accounting’ that Warren Buffet was likely referring to when he famously said: “in the world of derivatives…mark-tomarket
can sometimes degenerate into mark-to-myth.”
We hereby repeat our warning:
Global financial institutions are most likely saddled with HUNDREDS OF BILLIONS OF DOLLARS in unrealized capital losses due to the U.S. mortgage debt crisis!
To counter the continuing bogus propaganda by Wall Street cheerleaders about “small single-digit percentage declines” in U.S. home prices, here’s another interesting story about how much housing prices have really crashed in the once red-hot Washington market:
Obviously, not all regions have suffered 20% price declines, but this story should be an eyeopener
for those who are still in denial about the accelerating plunge in U.S. home prices….
In major economic news, the U.S. government reported a $163 Billion budget deficit and warned of a looming “fiscal train wreck” due to unsustainable growth in entitlement spending (Social Security, Medicare and Medicaid) as 78 million babyboomers reach retirement in the next few years. To really understand the magnitude of that problem it might help to remember that the U.S.
federal debt burden has already exploded by $3 TRILLION in just the last 7 years and now stands at a mind-boggling $9 TRILLION! That’s more than the combined GDPs of Brazil, Russia, India
and China…the so-called BRIC economies, who the Wall Street cheerleaders claim will save the day for the world economy if the U.S. falls into recession. Believe that nonsense at your own peril!
We remain convinced that the inflationary asset price bubbles in the BRIC countries will burst in the near future and lead to HUGE LOSSES for domestic and foreign investors in those countries.
The ‘trigger’ could be a U.S. recession, the likelihood of which has increased significantly as the current housing recession leads to a significant drop-off in U.S. payrolls in coming months (as layoffs surge in the construction, financial services, home improvement, retailing and brokerage sectors).
That, combined with the ‘negative wealth effect’ of sharply declining home prices and another surge in foreclosures will negatively impact consumer confidence. Personal consumption expenditures which have so far held up surprisingly well even as the economic skies have gotten darker, will abruptly succumb to the realities of a weaker job market, tighter credit and an irreparably broken housing ATM! That will almost certainly impact sales and earnings at most small and mid-size U.S. corporations very adversely. Most large companies will also feel the pain but some sectors like pharmaceuticals and consumer staples may weather the downturn better than others.
Contrary to the bullish perception created by the marginal new highs in the stock indices last week, we believe the fundamental underpinnings of the U.S. economy are going from bad to worse…
Given all of the above, we believe the global economy is headed straight into A Perfect Storm that will culminate in sharp corrections and/or bear markets in global stock and real estate markets!
From the Capital Multiplier 13 October
Comment