The Economy In Denial: Fallout From the Bursting Housing Bubble

Unless you marry or inherit money, financial freedom requires investing in something.  It really doesn’t matter if it is real estate, the stock market or business.  Investing is mandatory.  To become a successful investor one must understand trends and create strategies to capitalize on that trend.  Thus, one must become an avid reader and quick learner.  The internet has made this very convenient for us.  Each day I plow through numerous articles related to putting money in my pocket.  Often some of the economic ones are difficult to understand.  However, it becomes a little easier each time.

The following article I read a couple of times to really grasp it. This particular paragraph jump out and has given me a new insight to the housing collapse that we are facing. Continue reading “The Economy In Denial: Fallout From the Bursting Housing Bubble”

The New Titans

There is a great set of articles in the September 16th edition of The Economist.  It dispels the belief that when the US sneezes the rest of the world gets a cold.  Today’s emerging economies make up more than 1/2 of world GDP.  One way to play the emerging markets is discussed in my article How to make money on the industrialization of Brazil, Russia, India and China.  The BRIC basket is updated each week here in the Week in Review article.

 

Source: Guild Investment Management

The Economist articles start with the following statements: “China, India and other developing countries are set to give the world economy its biggest boost in the whole of history…..What will that mean for today’s rich countries?”

The articles address many issues we have discussed before and some that are new including:
1. “The borderline between the rich and poor has become more fluid.”
2. “Developing economies are having a good run.”
3. “Many workers are missing out on the rewards of globalization.”
4. “Does the world have enough resources to meet the needs of emerging economies?”
5. “Competition from emerging economies has helped hold inflation down.”
6. “Interest rates are too low. Whose fault is that?”
7. “How long will emerging economies continue to finance America’s spendthrift habits?”
8. “If today’s rich world does not watch out, it could become tomorrow’s relatively poor world.”

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Consumer Spending Spree

If you are going to give yourself a raise – why not a big one?  It should at least be large enough to add a pool or redo the kitchen.  Since wage growth has been non-existent for the past 6 years that is exactly what has been happening.  Thanks to the Fed, consumers were able to turn their homes into virtual ATM machines through low interest refinancing.  However, 17 interest rate hikes later it looks like the consumer will need to turn somewhere else for their next raise.

Source: The Daily Reckoning

The consumer has squeezed himself into a tight spot, but what got him there was the grease of phenomenally low interest rates. And now that the inverted yield curve is normalizing and borrowing for three months is actually becoming cheaper than borrowing for ten, the grease is getting a little stiff and gritty. US housing prices aren’t rising like they used to, while unsold houses are stacking up like empty shipping containers at Long Beach. Existing house inventories are 40% above those a year ago.

And stuck in his tight spot, the US consumer looks up into the mirror and sees a sucker in it.

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Jim’s Formula

Source: JS MineSet

Read and study the formula below.  Buy Gold to profit from it.

The Formula is simple:

  1. Interest rates rise and affect the drivers of the US economy, housing, but before that auto production goes from bull to bear markets. This impacts many other industries and jobs. These markets are either rising or the activity is falling at an increasing rate. That is economic law 101. There is no such thing in either market as a plateau of prosperity or Cinderella situation.
  2. You have witnessed the Dow rise sharply in the AM on economic news indicating deceleration of activity. This continued until a major corporation announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.
  3. The formula economically is inherent in #2 which is lower economic activity equals lower profits. Continue reading “Jim’s Formula”

Dr. Bernake – The Housing Market Needs an Orderly!

Source: Merill Lynch
August 24, 2006

New home sales -22% – weakest trend in over a decade

Yesterday we saw July data showing a 4.1% decline in existing home sales, and this was followed up by the new home sales report today, which showed a slide of 4.3% to stand at a below-consensus 1.072 million units (annualized) from 1.12 million in June – when sales slipped 0.9%. New home sales are now down 22% year-on-year, which is a swing of gargantuan proportions from the +26% trend exactly a year ago – this is the weakest trend in well over a decade. So far, all the data at our disposal spits out 2% GDP growth for the current quarter, down from an inventory-induced upward revision to Q2 of roughly 3.3%. The Fed is clearly done, in our view. The only thing “orderly” out there right now is the guy carrying the stretcher.

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