Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21
Work From Home £10,000 Office Tour – Workspace + Desk Setup 2021 Top Tips - 12th Jan 21
Collect a Bitcoin Dividend Without Owning the King of Cryptos - 12th Jan 21
The BAN Hotlist trade setups show incredible success at the start of 2021, learn how you can too! - 12th Jan 21
Stocks, Bitcoin, Gold – How Much Are They Worth? - 12th Jan 21
SPX Short-term Top Imminent - 12th Jan 21
Is This The Most Exciting Oil Play Of 2021? - 12th Jan 21
Why 2021 Will Be the Year Self-Driving Cars Go Mainstream - 11th Jan 21
Gold Began 2021 With a Bang, Only to Plunge - 11th Jan 21
How to Test Your GPU Temperatures - Running Too Hot - GTX 1650 - Overclockers UK - 11th Jan 21
Life Lesson - The Early Bird Catches the Worm - 11th Jan 21
Precious Metals rally early in 2021 - 11th Jan 21
The Most Exciting Oil Stock For 2021 - 11th Jan 21
Financial Market Forecasts 2021: Navigation in Uncharted Waters - 10th Jan 21
An Urgent Message to All Conservatives, Right-Wingers and Patriots - 10th Jan 21
Despite Signs to the Contrary, Gold Price at or Near Top - 10th Jan 21 -
Ultimate Guide On The 6 Basic Types Of Index Funds - 10th Jan 21
Getting Vaccinated at TESCO - Covid-19 Vaccinations at UK Supermarket Pharmacies and Chemists - 10th Jan 21
Cheers for the 2021 Stock Market and These "Great Expectations" - 9th Jan 21
How to Plan Your Child With Better Education - 9th Jan 21
How To Find The Best Casino - 9th Jan 21
Gold Is Still a Bargain Buy - 8th Jan 20
Gold Price Set to Soar as Hyperinflation Looms - 8th Jan 21
Have Big Dreams? Here's How to Pay for Them - 8th Jan 21
Will the Fed Support Gold Prices in 2021? - 8th Jan 21
Stocks trading strategies for beginners - 8th Jan 21
Who is Buying and Selling Stocks in 2021 - 8th Jan 21
Clap for NHS Heroes 2021 as Incompetent Government Loses Control of Virus Again! - 8th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Five Mega-Trends Unfolding In 2008

Stock-Markets / Financial Markets Dec 28, 2007 - 09:25 AM GMT

By: Money_and_Markets

Stock-Markets

Best Financial Markets Analysis ArticleMike Larson writes: The last 12 months have seen monumental shifts in the interest rate and real estate markets. And if I'm right about where things are headed, 2008 should be just as exciting, if not more.

Naturally, I can't give away the entire store here. More precise forecasts and profitable recommendations are reserved for loyal subscribers to Safe Money Report , who will be getting a potentially lucrative gala outlook issue shortly.


If you're not a member, I'd like to take this opportunity to extend a very personal holiday invitation. Simply click here now and start your introductory subscription to Safe Money Report with no risk or obligation.

Now, with that said, it's time to dust off the old crystal ball and share some of my profound insights with you for the next 12 months. Let's get right to 'em ...

Mega-Trend #1: The Housing Downturn Will Drag On ... And On ... And On

A few years ago, I started warning that the housing market was a dangerous bubble, destined to pop with devastating consequences.

I highlighted predatory mortgage lending, ridiculous speculation, out-to-lunch regulators, and dramatically overvalued homes as threats to the entire housing system — and told you to expect those problems to come home to roost. Boy, have they ever.

To recap some of the major points ...

Sales and construction activity have collapsed: Existing home sales have plunged 31% from their 2005 peak. New home sales are down even more — around 48%. Meanwhile, single family housing construction activity has tanked 55%. And the decline isn't over: The issuance of new building permits — an indicator of future housing starts — has dropped to its lowest level since 1991.

The outlook has worsened as empty homes have piled up: An index that measures home builder optimism, buyer traffic, and expected sales has plunged from the 70s during the boom to 19, a record low. And the nationwide home vacancy rate has surged to a near-record 2.7%, a testament to the dramatic glut of empty, depreciating homes sitting on the market.

Mortgage performance has suffered: An alarming 5.6% of the nation's homeowners have fallen behind on their mortgage payments — up from roughly 4.7% a year earlier and the most since 1986. The percentage of homes in any stage of foreclosure has jumped to 1.7%, the highest since the Mortgage Bankers Association began tracking it in 1972.

According to some estimates, as many as 2.2 million homeowners could lose their houses over the next 24 months!

We've already seen the price of an American home lose 6.1% from a year ago, according to the well-respected research group S&P/Case-Shiller. The Census Bureau shows the price of new homes down even more — 13% in October, the sharpest drop in 37 years.

I fully expect more declines in 2008. Home values will likely fall by the mid-single digits nationwide, and more in select markets.

Longer-term, the downturn in construction activity will eventually cut housing inventory to a more manageable level, while lower prices will entice more buyers to step up to the plate.

But it'll take a good long while to get housing supply and housing demand into better alignment. I don't expect the overall market to start a gradual recovery until late 2008 at the earliest. More than likely, it will take until 2009.

Mega-Trend #2: Commercial Real Estate Ready For Its Turn On The Chopping Block

In May, a Moody's commercial real estate analyst declared ...

"Underwriting has gotten so frothy that we have to take a stand ... the industry was heading to Niagara Falls."

But by the time Moody's took its stand, the frothy underwriting in the commercial sector was too far gone.

As on the residential side, the industry was already plagued by interest-only financing ... loans with huge balloon payments ... hasty and shoddy due diligence ... scrimping on tax, insurance, and maintenance reserves by landlords ... little or no equity contribution from purchasers ... not to mention loan-to-value ratios of 80%, 90%, even 120%.

Commercial lenders are now attempting to get their arms around the problems. But they waited too long. They're trying to shut the barn door after the horses are gone. Third-quarter delinquency rates on commercial real estate loans surged to a nine-year high of 1.94%, up from 1.11% a year earlier, and they're poised to rise even higher in 2008.

The result: Commercial property values will likely deteriorate in 2008, and commercial foreclosures will escalate. Heck, the process is already underway — as the Wall Street Journal reported on Wednesday:

"For the past few months, the [commercial real estate] sector has been in a state of near-paralysis, as financing has nearly dried up. The number of major properties sold is down by half, and many worry that the market will continue to deteriorate as property sales remain slow, prices continue to drop and deals keep falling apart."

Earnings prospects for a wide variety of Real Estate Investment Trusts, or REITs, will likely weaken as well, prompting even more REIT investors to jump overboard.

After all, office, industrial, and retail vacancies are starting to rise, and rental growth is never going to live up to the extremely optimistic projections promulgated during the boom.

Mega-Trend #3: The Party's Over For The Financial Sector

The finance industry generated hundreds of billions of dollars in profit in the past few years. Originating, bundling, buying, selling, and trading residential mortgages, corporate debt, leveraged buyout loans and more was a humongous cash cow.

And don't even get me started on the explosion in the packaging and trading of complex, hard-to-understand derivatives.

Suffice it to say that the notional, or face value of global over-the-counter derivatives soared to a stunning $516.4 TRILLION in the first half of 2007! That was up 40% in a year and up almost six-fold since the turn of the century, according to the Bank for International Settlements.

Unfortunately for many financial firms, that business model is now shot. Complex debt securities are blowing up. The risk of parties to derivatives transactions actually failing to meet their obligations — known as "counterparty risk" — is rising fast. And the origination and packaging of all kinds of debt is grinding to a halt.

A couple key examples ...

 Commercial real estate bond issuance plunged to $4.9 billion in October from a peak of $26.9 billion in August.

 Sales of asset-backed bonds, like those comprised of home equity, auto, and credit card loans, plummeted to $29.1 billion in November from a peak of $140 billion in March.

Bottom line: The decline in all these businesses will crimp sector earnings. Loss rates on previously originated loans are also poised to rise sharply. That makes most financial stocks a high-risk bet.

Mega-Trend #4: Election Year Politics Will Spur Epic Bailout Efforts

The 2008 election process is starting to kick into high gear. This will be one of the most pivotal presidential election years in decades — not only because no incumbent is running but also because the hottest days of the campaign are likely to coincide with some of the worst shocks of the housing bust.

The race is on among democratic presidential hopefuls to bailout homeowners in 2008.

I can think of nothing that could be a more riveting, baseball-and-apple-pie issue for politicians than the prospect of millions of voters losing their home. It's the American Dream turned into the American Nightmare.

Result: Unprecedented pressure on Washington officials and politicians — whether coming, going or staying — to keep voters happy and the government bailout machine in overdrive.

Already ...

  • The White House has announced an "FHASecure" reform plan designed to make it easier for troubled borrowers to refinance with a government-backed mortgage.
  • In December, we also got the much-heralded "Paulson Plan" — a separate program to freeze interest rates for certain borrowers.
  • Democratic politicians are pushing even more aggressive plans. Hillary Clinton, for example, wants to institute a 90-day moratorium on foreclosures. Connecticut Senator Chris Dodd, who is also Chairman of the Senate Banking Committee, recently spearheaded an effort to go further down the path of FHA reform.

Meanwhile, on the monetary policy front, the Fed is jumping into the game with both feet. Late in 2007, it cut the federal funds rate ... slashed the discount rate ... and made other sweeping changes to the way it channels funds to the banking system, as I detailed last week .

You can expect policymakers to continue competing for bailout supremacy on the monetary policy and legislative fronts. We could even see additional tax bills targeted at stressed consumers and borrowers.

While these efforts will help some marginal borrowers and banks, they won't be enough to offset the economic forces aligned against residential and commercial real estate. Indeed ...

Mega-Trend #5: Despite All This Money Pumping, The U.S. Has A Date With Recession

When an iceberg pierced the hull of the Titanic nearly a century ago, nothing could keep the 46,000-ton ship afloat. Likewise, once the credit crunch began piercing the U.S. economy in 2007, there was nothing on the foreseeable horizon that could prevent a recession.

Never forget that lenders provide the lifeblood of an economic expansion.

Companies borrow money to build factories. Developers take out loans to put up apartment complexes and strip malls. Consumers use credit cards and home equity loans to finance their spending. But now, that flow of credit is being squeezed everywhere.

It's also getting tougher and tougher for businesses to obtain commercial and industrial loans. In fact, half the lenders recently polled by the Fed say they're tightening standards on commercial real estate loans.

That's double the level a year ago, and the highest reading since 1990, when the Savings & Loan crisis was crippling the banking system.

With the "housing ATM" spitting out fewer and fewer dollars ... and standards tightening across a wide range of loan products ... the economy is starting to roll over.

Consequently, it looks like 2007 could end up being the auto industry's worst sales year since 1998, and the just-completed holiday shopping season was a real disappointment.

It's clear that the federal government and the Federal Reserve will do everything they can to fight the recession threat. But they will likely fail, with the economy shrinking for at least part of 2008.

Keep these five mega-trends in mind. I believe they will affect everything from stocks ... to interest rates ... to the bottom-line performance of your own portfolio.

And by all means, have a great New Year's holiday!

Until next time,

Mike

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules