U.S. Housing Bust! Asian Tech Boom!

Tony Sagami’s so worried about what’s happening to U.S. tech stocks, he’s hopped on a plane and flown off to Asia. He’ll give you a sneak preview of his research tour in just a moment.

But first, Martin has asked me to give you an urgent update on what’s happening in the U.S. housing market.

If you’re like most of my friends and family, your home is your biggest and best investment. It’s worth more than any single stock or mutual fund in your portfolio – perhaps more than all your other investments combined. But right now …

Home Prices
Are Falling!

In Bethesda, Maryland, prices have tumbled 16% from December to January.

In a key area of Fresno, California, the median sale price for homes was $439,000. But in just the last 60 days, those homes have plummeted $51,000, to $388,000.

In San Diego, new home prices have just suffered the sharpest month-to-month dive ever recorded.

In Palm Beach County, Florida, where we live, we see the same thing. Every day, when we drive to work, we see “house for sale” signs sprouting like unwanted weeds along the road. And every night, as we drive home, our eyes turn to a skyline sculpted by dozens of new high-rise condominiums, nearly all in darkness, nearly all unoccupied.

And this is just a small sampling. I can give you a dozen more examples – from Sarasota … Chicago … Phoenix … Washington D.C. and more that show this “adjustment” in prices could be sharp, severe and widespread.

This Housing Bubble is Busting.
And the Bust Could Spread from
Coast to Coast Like a Giant Storm.

It may have reached your area already. Or it may be on its way. In either case, my question for you today is: Are you planning to just ride it out? Or are you going to do something about it?

Suppose your home falls 30% in value. What about 40% or 50%? Given how fast and far home values have surged, that would not be unusual.

Heck, even if the price of your home falls by a “mild” 10%, that could be a huge hit to your net worth.

Let’s say, for example, your home is worth $500,000, and you’ve got a $450,000 mortgage. Guess what: Just a 10% decline wipes out 100% of your equity. Even if you’ve got another $50,000 in the bank, that still means that half of your net worth has gone up in smoke.

I’m writing you now because you don’t have to ride it out. You don’t have to sit there passively while a housing bust wipes out much or most of your net worth. Indeed, there’s a lot you can do to protect yourself – even to go after unusually large profits.

And it does not require selling your home.

The Biggest Glut of
Unsold Homes of All Time

All across the USA, brand new, single-family homes are begging for buyers.

And empty condos are about as popular as lepers at a kissing contest.

Here’s why …

1. Home sales are dropping.

The sales of existing homes are at their lowest level in nearly two years … and sinking fast. That means if you want to try selling your home right now, it’s probably going to take a heck of a lot longer to move it. And more and more people are putting their homes up for sale.

The same is happening in the new home market, where sales just plunged to a one-year low. But builders are committed to past contracts. So they’re still building record numbers of shiny new homes.

As a result …

2. The supply of homes on the market is ballooning out of control!

The number of new homes for sale just hit 528,000 in January. That was the worst at any time in U.S. history.

At the same time, in the used home market, a whopping 2.9 million units have flooded the market. That’s just shy of an 18-year high.

3. Condos are getting hit the hardest of all.

Nationwide, condo and co-op sales have plunged 7.8% over the last 12 months. And supplies surged by 49.5%! If you own a condo, good luck selling! And even if you don’t own one, the drop in condo prices will naturally put pressure on your properties as home buyers choose the cheaper alternatives.

These warning signs would be troubling for any market. Yet the real estate lobby keeps whistling past the graveyard.

Just yesterday, the National Association of Realtors published its 2006 sales outlook, forecasting sales declines of almost 6% for existing homes and 8% for new homes, the biggest drops since the 1990s.

But their headline is pure spin: “Housing Market Readjusting to Normal Balance.” Ha! That’s the kind of doublespeak that would make George Orwell proud.

Look. We’ve just seen the most massive real estate run-up in recent memory. We’ve got a market that’s grossly overbuilt and overpriced. We have millions of unsold homes all over the country.

Result: We’re on the brink of a free fall. And it could take the price of your home along with it.

From Dream Home
to Financial Nightmare

What’s next?

Millions of American families, already stretched beyond their means to afford their dream homes, will snap beneath the burden of rising monthly payments.

And we’re no longer the only ones warning you about this. Just this past Saturday, the lead article in the Wall Street Journal issued a very similar warning:

Over $2 trillion in adjustable-rate mortgages (ARMs) are going to reset to higher rates this year and next.

Already, a growing number of homebuyers are having a hard time making their monthly mortgage payments. And now, they’ll suddenly see their payments jump 30%, 40% even 50%. Past-due notices will start pouring into the nation’s mail stream – from hundreds of mortgage lenders and banks to hundreds of thousands of households.

Suddenly, nearly everyone will be in a rush to put up their “for sale” sign before their neighbors do the same.

A man’s home is his castle, but when it’s unsellable, it becomes a prison.

Home foreclosures are already rising ominously. According to RealtyTrac, an online marketplace for foreclosure properties, about 103,540 properties nationwide entered some stage of foreclosure in January. That’s up 27% in a month … 45% in a year, the biggest surge I’ve ever seen.

Result: Still more pressure on the value of your property.

Steps You Should
Take Right Away

I’ve just written a special report, “The Great Real Estate Bust of 2006-2008,” with detailed steps on what to do immediately. Here are seven to help get you started …

Step 1. Sell your investment real estate. Don’t wait. Don’t worry about replacing the income right now. Just move quickly to protect your capital. (More details on why, how and where in my report).

Step 2. Think about your own home. If it means a lot more to you than just an investment, stick with it. If not, run the numbers on owning vs. renting. You’ll probably find that renting is cheaper even after you factor in the tax advantages of owning. By selling, you not only protect your nest-egg … you also cut your monthly expenses.

Step 3. If you absolutely must buy now for reasons that have nothing to do with the ups and downs in home prices, I understand. But don’t spend more than 25% of your gross income on principal, interest, taxes and insurance. And don’t miss the section in my report “10 Ways to Be a Smarter Home Buyer.”

Step 4. If you’re holding mortgage bonds – from Fannie Mae, from Freddie Mac, or based on the high-risk “subprime” mortgages – sell now. The market value of these bonds is likely to fall as home prices decline and mortgage delinquencies rise.

Step 5. From your stock portfolio, dump construction companies, subprime lenders and mortgage REITS. In my report, I discuss seven vulnerable sectors, and I name up to six stocks in each.

Step 6. A housing bust can do more financial damage to more properties than any hurricane. You have insurance to protect your home against storm damage. So why don’t you buy some protection against a housing bust? In my report, I explain how.

Step 7. Go for a profit bonanza! There are investments you can buy right now that are designed to double and triple in value as the real estate market crumbles.

For example, you can buy long-term options, called LEAPS, on the two home builders named in my report. The more the stocks fall, the more money you stand to make.

If you download my report now, you’ll be entitled to four follow-up reports. The entire package – my special report and the four follow-ups – is normally priced at $495. But right now, the complete package is $129.

Your overarching goals: Avoid the avalanche of properties that’s starting to hit the market. Get out of debt. Grow your wealth. Build your cash. And stash it away in a safe place.

The Silicon Valley
of East Asia
by Tony Sagami

One place home values have gone through the roof is Silicon Valley.

But right now, the true center of the high-tech universe is moving quietly and steadily to Taiwan, where I am right now.

My son just took this picture of me yesterday, our day off to see the sights.

And this morning, we’re off to Hsinchu, the new Silicon Valley of East Asia.

Hsinchu (pronounced SHIN-joo) is a relatively small town of roughly 500,000 people located on the northwest coast of Taiwan about 50 miles southwest of Taipei. Set between Taiwan’s central mountain range and the China Sea, it is home to hundreds of the fastest growing technology innovators in the world.

Hsinchu even looks a bit like Silicon Valley: The familiar Spanish-style homes with arched doorways and red tiled roofs … young professionals jogging down tree-lined streets … plus row after row of the sleek, glistening headquarters of high-tech companies.

This is the highlight of my visit to Taiwan. Over two-thirds of this tropical island is rugged mountains, leaving the 23 million people crowded into ever expanding cities.

Taiwan used to be a country that manufactured mostly cheap, low margin shoes, apparel, and toys. Now, thanks to its forward-thinking leaders, it has transformed itself into one of the world’s leading technological innovators.

Taiwan is the world’s number one provider of chip foundry services, with a whopping 70% of the entire world market and the world’s number one provider of PDAs, with an even larger market share – 79%.

It’s the world’s leading maker of notebook PCs, with 72% of the world market … the largest maker of LCD monitors (68%) … the second largest provider of computer servers (33%) … the second largest in digital still cameras (34%) … and the third largest in a long list of other electronic products.

They’re also the largest supplier of motherboards, computer monitors, scanners, and computer peripherals.

Much of this amazing transformation was driven by the research, developed or headquartered in Hsinchu.

A key reason: In 1980, the Taiwan government founded the Hsinchu Science Park and poured a total of $1.679 billion into building a world-class technology center that could attract, house, and service the nation’s high-tech leaders.

At the same time, the government funded the Industrial Technology Research Institute, a collection of labs employing 4,300 engineers and working closely with scientists from MIT, the University of California at Berkeley, and Carnegie Mellon University.

With time, Hsinchu was then able to repatriate thousands of Taiwanese citizens who had immigrated to the U.S. and were working in Silicon Valley – a reverse brain drain that virtually teleported, lock stock and barrel, much of the brilliance and knowledge that had helped make the U.S. the world’s high-tech leader.

To lure them back, the government offered tax breaks and low cost housing. They even duplicated California amenities from volleyball courts on the nearby beaches to Spanish Colonial homes in the surrounding neighborhoods.

And it worked. Hsinchu Science Park is a roaring success that has helped transform Taiwan into a high-tech powerhouse, second only to Japan and the United States.

Meanwhile, Hsinchu is growing so rapidly and land is becoming so scarce, that companies are bulldozing perfectly functional buildings to replace them with glistening skyscrapers.

Close to 400 cutting-edge technology companies – mainly semiconductor, computer, telecommunication, and optoelectronics industries – call Hsinchu Science Park home.

Pure and simple, any stock investor that overlooks Taiwan is ignoring some of the fastest growing, most dynamic, and profitable tech companies in the world.

5-Day Cram Session

This week, I’m going to immerse myself into the high-tech culture of Hsinchu and visit as many companies as I can possibly cram into my five-day stay. I wish I had five weeks. But as soon as I’m done, I need to rush back to Montana.

Some of the companies I’m going to visit:

Asustek Computer produces iPods and Mini Macs for Apple.
Hon Hai Precision Industry is the company that will be assembling the much-anticipated Sony PlayStation 2.
One of the largest makers of notebook computers in the world, and a major supplier to Dell and Hewlett-Packard.
One of the biggest semiconductor foundries on the planet and the chip maker for companies such as Qualcomm and Nvidia.
Two of the largest suppliers of liquid-crystal display (LCD) panels in the world.
A major maker of connectivity and data communications hardware. In fact, the computers, printers, and network I’ve set up in my own office back home is made possible through this company’s products.

I can’t stress enough: These are major, hugely successful companies with far better prospects than most of their U.S. counterparts.

Heck, the revenues of the 25 largest tech companies in Taiwan were estimated to hit $122 billion in 2005. Yup, $122 billion.

The list of tomorrow’s big tech winners is also growing fast. For example, one leading phone technology company recently relocated from Silicon Valley to Taiwan last year. How come? The Taiwan government arranged a round of venture funding and showered it with millions in special subsidies.

My plan: To prod, poke, and evaluate dozens of different companies, talk to a small army of engineers, and ask the hard-charging Taiwanese tech entrepreneurs exactly what direction they’re going in to shape their companies’ futures.

I wish you could be here with me.

Best wishes,

Tony Sagami

For more information and archived issues, visit http://legacy.weissinc.com.

About MONEY AND MARKETS

MONEY AND MARKETS (MAM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Larry Edelson, Tony Sagami and other contributors. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MAM. Nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MAM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical inasmuch as we do not track the actual prices investors pay or receive. Contributors include Jennifer Moran, John Burke, Beth Cain, Amber Dakar, Michael Larson, Monica Lewman-Garcia, Julie Trudeau and others.

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