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Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Sub-prime Mortgage Credit Crunch From Bad to Worse

Stock-Markets / Subprime Mortgage Risks Sep 04, 2007 - 10:17 AM GMT

By: David_Vaughn

Stock-Markets

Well, that poor bull seems to be tiring. Uh, oh! No! Wait! I believe there's life in that ole' gold bull yet. Anyway, there is life for those with enough sense to observe its strength and consistency.

Well, I spent an entire article last week about this subprime mess and scandal and I still do not feel I said enough on the topic. The damage this will cause our country and the rest of the world really is enormous. I really don't like to come across as a doom and gloomer, but I would be a coward to run from the subject and choose to ignore it.


I hope you have your home paid for, I hope if not that your mortgage is a fixed rate; I hope you are wisely invested in gold equities. I know you probably are growing tired hearing about this subprime mess but I personally believe all of us should keep our eyes focused on the events as they unfold.

My biggest concern is that this will cause other nations to lose faith in the US dollar and start liquidating their US assets. Sure, gold will benefit, but the fallout from this mess will be enormous.

“An estimated $1.3 trillion in subprime mortgages are currently outstanding. That's nearly as large as entire California economy.” Click

What we are beginning to see is something phenomenal and unique in our life time. Never before has an entire mortgage sector come crashing down simply because of bad simplistic judgment. Probably half the loans made in the past five years shouldn't have been made. Too big a house and too high a mortgage payment.

“News about home sales could go from bad to worse” “The news Monday from the National Association of Realtors was bad enough: Sales of existing homes fell in July to their slowest pace in five years. The glut of homes for sale is at a 16-year high. The median price is down for a record 12th month in a row.” ”What's really grim, though, is this: None of the figures reflect this month's turmoil in the mortgage market. Which is why the numbers will likely be even worse in coming months.” Click

The risk and hope was that the value of the house would climb higher and credit would remain easily obtained. That is not happening. Scores of homeowners now have to vacate 150,000 dollar homes, 250,000 dollar homes, and 400,000 plus homes. This is putting a strain on households as they abandon their homes behind with little or more likely zero equity. You don't think that will filter eventually down to the consumer sector?

“How severe is subprime mess?” ”The hangover from the lending spree that fed the real estate boom during the first half of this decade keeps getting worse…” “Isn't this just a small part of the mortgage market?” “Although most home loans don't fall into this category, subprime mortgages have proliferated in recent years as rising real estate values emboldened lenders to take more risks. Wall Street encouraged this behavior, too, by bundling the loans into securities that were sold to pension funds and other institutional investors seeking higher returns.” Click

But anyway let's talk about our favorite subject – gold. Because there is no doubt in my mind that gold will be the ultimate safe haven for those looking for safety. Fear continues to reign in the gold market. Gold maintains a beautiful consistency yet believers are cringing under their collective pillows. If gold stayed in its present range for the next five years gold mining interests will still make a lot of money.

“Hello David, I find it exasperatingly amusing how the Fed keeps trying to paper over the sub-prime bullet wound. Eventually the blood will soak through all that paper, as the underlying infection only gets worse. The solution lies in digging the infection out with the golden scalpel, and applying a fresh dressing of gold backed dollars. In time, the gaping wound in the economy will heal, but not without much pain in recovery. Regards, Anthony S.”

Anyway, gold and natural resource equities still remains the best speculation in town and will remain so for many years to come.

Gold Letter, Inc. reviews gold, silver, uranium and other resource stocks under valued and poised to rise in this time of increased demand for all resources. Natural resources and related contrarian stocks will only escalate in value as the world continues to experience unprecedented population growth. Gold Letter's 10 best performing stocks are up over 2,000% and GL's top 55 performing stocks are up over 500%. Close to 90% of all Gold Letter's recommendations since inception in January, 2003 are up over 250%. GL charts are computer generated and updated every hour while markets are open.

Click here to order Gold Letter

“The Worldwatch Institute, an organization that focuses on environmental, social and economic trends, says the current rate of global demand for resources is unsustainable.”   Click

Send me an email! Tell me what you personally feel about this subprime mess.

By David Vaughn
Gold Letter, Inc.
David4054@charter.net

The publisher and its affiliates, officers, directors and owner may actively trade in investments discussed in this newsletter. They may have positions in the securities recommended and may increase or decrease such positions without notice. The publisher is not a registered investment advisor. Subscribers should not view this publication as offering personalized legal, tax, accounting or investment-related advice. The news and editorial viewpoints, and other information on the investments discussed herein are obtained from sources deemed reliable, but their accuracy is not guaranteed. © Copyright 2007, Gold Letter Inc.

David Vaughn Archive

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