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The housing market is sinking further, while the oil and gold shares we’ve been recommending are soaring.
But are you ready?
Are you ready for the day when the average home in America has gone down for 13 months?
When homeowners stand to lose $4 trillion just because the market is going down instead of up?
Or when 2 million Americans could lose their homes in foreclosure because their adjustable-rate mortgages adjust?
Are you ready for the day when dozens of mortgage companies have gone bust and another hundred or more are on the brink …
When mortgage investors could lose almost double what was lost in the 1980s savings and loan debacle … or …
When millions of middle-class Americans can’t get a mortgage?
Are you ready?
We sure hope so.
Because that day has now arrived.
Perhaps you’re hoping that, by cutting interest rates or by dishing out plenty of “free” money, the Federal Reserve will save the day and cure the sick housing market.
Perhaps you’re thinking that, if you have no big debts or you don’t own a home, the $4 trillion in losses and the 2 million lost homes are someone else’s problem.
But do you realize that the Fed’s rate cuts and the Fed’s billions in “free” paper money are now sinking the value of the American dollar?
And that the American dollar has just recently fallen to the lowest level since Benjamin Franklin?
Have you considered the impact of crude oil, the most important commodity in the world, surging to $92, its highest price of all time … or …
The significance of the world’s best indicator of a sick dollar — gold — closing in on $800 per ounce?
Do you have strong reasons to doubt that, because of the falling dollar … your earnings … your savings … and your entire retirement could be gutted?
The good news: There are solid ways to protect yourself from the housing mess and profit from the falling dollar.
The better news: The oil and gold investments we’ve recommended — with precisely this situation in mind — are now literally going through the roof.
We’ll give you the latest on three of these winners in a moment. But first, here’s Mike’s update on the housing market and its impact …
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A Scary Halloween Story
by Mike Larson
Maya is too young to enjoy my scary Halloween stories.
But I couldn’t script anything more frightening than the one being played out before your eyes in the housing crisis.
In the existing home market …
- Sales of single-family homes, condos, and co-ops plunged to a seasonally-adjusted annual rate of 5.04 million in September. That’s down 8% from August … down 19% from a year ago … and off a whopping 30% from the 2005 peak.
- Combined sales (of all property types) are the worst since the National Association of Realtors started tracking the numbers in 1999.
- Inventory is just as bad. There were about 4.4 million homes on the market last month, up more than 16% from a year ago and just shy of this summer’s record. That’s 10.5 months of supply at the current sales pace — the worst on record.
- Home prices are falling faster. The median cost of an existing home was $211,700 in September, down more than 4% from a year earlier.
The latest news on the new home market is equally scary …
- Sales reportedly rose between August and September, but only because August’s figures were revised dramatically lower. In fact, the government lopped 167,000 sales off the count for the past three months!
- Median prices were supposedly up 5% from a year ago. But everything I’m seeing on the ground — desperation sales, dramatic incentives, $100,000+ price cuts — tells me that’s statistical bunk.
- The only minor positive: New home inventories have been declining due to construction cutbacks and aggressive use of sales incentives.
But …
- An index that tracks builder confidence and buyer traffic just fell to its lowest level ever in October.
- And loan delinquencies and foreclosures have continued to climb: RealtyTrac counted 223,538 foreclosure filings in September, double the level of a year earlier.
Clearly, anyone who tells you it’s the work of fictional ghosts and goblins is mistaken. Meanwhile …
The Specter of Housing Is Haunting
The Entire U.S. Financial Sector
Earnings season has kicked into high gear, and one thing has become painfully clear: Financial firms are getting creamed by U.S. housing woes.
Citigroup’s (C) profits plunged 57% in the third quarter, fueled by a massive $6.5 billion hit from losses on leveraged loans, subprime mortgages, and bad trades.
Washington Mutual’s (WM) earnings tanked 72% as the mortgage market soured. The savings and loan was forced to set aside almost $1 billion in a single quarter to cover bad loan costs.
Bank of America (BAC) just said it would jettison 3,000 workers in its investment banking unit after taking a $4 billion hit on bad trades, leveraged finance write-downs, and defaults.
Merrill Lynch (MER) had a nightmare quarter! The firm took a $7.9 billion write-down on the value of subprime mortgage positions, leveraged finance-related positions, and Collateralized Debt Obligations. That led to a loss of $2.82 per share, almost six times the 50-cent per-share loss Merrill projected only a couple weeks earlier!
Ambac Financial Group (ABK), the company providing default insurance for municipal bonds, mortgage bonds, and CDOs, just reported a net loss of $361 million — thanks to $743 million in write-downs to the value of credit derivatives.
And have you seen what’s happening at PMI Group (PMI) and MGIC Investment (MTG)? They’re mortgage insurance firms — companies that cover a percentage of a mortgage lender’s losses when a borrower defaults. These guys look like death warmed over. PMI has tanked about 63% so far this year, while MGIC just traded down to its lowest level since 1995!
None of this should come as any surprise to you. I’ve been warning for months that these companies would get hammered by the unfolding crisis.
But this is the first time we’re seeing such large losses — from so many companies — all at the same time.
End result …
The Government Is Spooked and
It’s Jumping in Even More
Aggressively to “Save” the Market!
As recently as April, the federal government was still downplaying the crisis. No more!
President Bush has pushed a plan that would allow some strapped borrowers to refinance and switch to FHA mortgages.
House Financial Services Committee Chairman Barney Frank (D-MA) has introduced legislation that’s designed to crack down on many of the bad lending practices that got us into this mess in the first place.
Regulators have been twisting lenders’ arms to get them to refinance or modify billions of dollars in borrower loans before they tumble into foreclosure.
Plus …
The Treasury Department and Wall Street are trying to engineer the creation of a “Master-Liquidity Enhancement Conduit” — a bailout fund for major banks and investment firms.
The idea: The fund will buy up a bunch of crummy debt securities and dump them into one place. That supposedly will ward off panicky selling of impaired debt and allow investment firms to avoid billions of dollars in losses.
And for Halloween night itself, here comes Ben Bernanke again, possibly with an encore performance.
He’s already slashed the federal funds rate by a greater-than-expected half point.
He’s already cut the discount rate by 50 basis points twice.
He’s already infused the banking system with hundreds of billions of dollars in cash, including $38 billion on a single day in August and another $38 billion in one day in September.
And he’s even bent the rules so he can continue to accept mortgage-backed paper as collateral when he’s dishing out loans to banks.
Bottom line: The government is pumping money into the U.S. economy every which way it can. But for anyone who knows how to profit from the madness, the script is not scary at all …
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Supersized Gains in
Our Favorite Oil
And Gold Stocks
This is Martin again, with the update on some big winners that I promised you at the outset.
Take Petrobras, for example, Brazil’s national energy company traded as PBR on the New York Stock Exchange: Just in the last year, its shares have more than doubled.
Petrobras is not only a world leader in advanced technology for deepwater oil exploration, it’s now in the forefront of Brazil’s ethanol revolution.
Just last week, it jumped $11.80 per share, up 14.8%!
Another one of our favorites, Agnico-Eagle Mines, is also on the move: In the summer, it was trading down a bit at the $34 level.
But now, it’s zooming again. Friday alone, it rose 4.67%, piercing the $54 level and trading after hours at $54.90.
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And Larry Edelson’s favorite pick — Pohang Iron and Steel (also known as POSCO and traded on the NYSE as PKX) — has beaten both Petrobras and Agnico-Eagle hands down.
The shares of this Korean steel giant began 2006 at $49.51. On Friday, it ended the day at $185.18.
That’s a whopping 274% increase in just 20 months. And just last week, it was up more than 27 points, or 17.3%.
Larry didn’t know about this week’s surge when we invited you to our Emergency Strategy Update a few days earlier. But coincidentally, this very stock, Pohang Iron and Steel, was one of the companies that he picked out to highlight in that event.
Indeed, earlier this week, when Larry and I invited you to this urgent event, some investors must have wondered: “What’s the big emergency? Why the urgency?”
Now they know.
If you joined us, great! If not, do you have any idea what you’re missing?
To see it — and to make sure you can do so without anything getting in the way — here’s what I want you to do right now.
First, click here. Please allow about 10 seconds for the program to start. You should have no trouble viewing it.
Second, if you do not see any video, it means you don’t have the right software. But you can download it right now by clicking here.
Third, during the download, you should be prompted to allow an ActiveX Control to install it. Just go ahead and say “yes.”
That should do it! If not and you’re still having trouble, don’t worry. Just call us at 1-800-291-8545, and we’ll do our best to walk you through it.
Good luck and God bless!
Martin
About Money and Markets
For more information and archived issues, visit http://legacy.weissinc.com
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Sean Brodrick, Larry Edelson, Michael Larson, Nilus Mattive, Tony Sagami, and Jack Crooks. 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 in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include John Burke, Amber Dakar, Adam Shafer, Andrea Baumwald, Kristen Adams, Maryellen Murphy, Red Morgan, Jennifer Newman-Amos, and Julie Trudeau.
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