It’s quite unbelievable…

U.S. mortgage rates have fallen to their lowest level on record—since Freddie Mac started keeping records of mortgage rates back in 1971.

A 30-year fixed U.S. mortgage can be had today for 4.12%. But instead of consumers taking advantage of the low rates, mortgage applications actually fell five percent last week, according to the Mortgage Bankers Association.

Consumers are still not interested in purchasing homes. And who can blame them?

About 12.9% of all U.S. home mortgages are 30 days or longer past due on their payments. That’s 6.3 million mortgages that are late. And many banks have pulled back on their foreclosure process, as they deal with claims from various States that lenders improperly foreclosed on homes.

American consumers are not stupid. With the glut of foreclosures overhanging the market, with banks soon or later needing to restart their rapid pace of new foreclosures, with the underemployment rate in this country at 16.2%, consumers are rightfully looking for better deals ahead. (The under-employment rate includes part-time works who want full-time jobs and people who have given up looking for work.)

Yes, some analysts have been saying that the big U.S. new-homebuilder stocks have bottomed out and that these stocks might be a buy today. But I think it’s still too early.

Somewhere down the road, the stocks of new homebuilders will undoubtedly present investors with a tremendous and classic “buy low” opportunity; it’s just not time yet. Why buy an investment and hold it, waiting for it to go up? I like to buy when prices hit bottom and start to rise…and we’re not just there yet with the homebuilder stocks.

Michael’s Personal Notes:

It was a very emotional weekend in the Lombardi household. As a general rule, I don’t watch TV unless it’s a documentary of interest or current event. But we were glued to the TV Sunday morning for the 9/11 10th anniversary ceremony…tears in our eyes as we watched.

The designers and architects that decided on the memorial at Ground Zero did a spectacular job. The cascading water, the names of those who passed during the terrorist attacks engraved on the sides of the water structures, the trees…truly beautiful.

Yes, the horrifying memory lives on. For my generation, there will always be two “where were you when” moments: when President Kennedy was shot and when the planes hit the Twin Towers.

The human being is an exceptional animal…especially in how we are able to rebound from adversity and disaster. New York, a city my family truly loves, is more gracious, stronger, safer, and more welcoming today than ever.

Surprisingly, the best speech of the day, I believe, was Vice President Joe Biden’s speech at the Pentagon ceremony. In case you didn’t see it, you can see it on YouTube here: http://www.youtube.com/watch?v=MqUBjhLWrKs.

Where the Market Stands; Where it’s Headed:

The Dow Jones Industrial Average opens this second week of September down 5.1% for 2011. While there is pressure on the markets this morning related to the renewed fear of a Greek default, I believe that the market discounted the Greek crisis long ago.

My opinion is that we are still in a bear market rally that started in March of 2009. From March 9, 2009, to this past Friday, this bear market rally has brought stocks 71% higher.

What He Said:

“I see the coming recession being deep and difficult because U.S. consumers do not have the savings to spend their way out of the recession. The same thing happened in Japan. The Japan example proved that when consumer confidence is shattered, even zero percent interest won’t spur consumer spending. The same thing could happen here.” Michael Lombardi in PROFIT CONFIDENTIAL, August 23, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.

My commentary today is dedicated solely to the stock market. Many of my readers are obviously invested in stocks and are concerned over last week’s volatility.

Let’s start with the general consensus…

Whatever I read this weekend, the message was basically the same: “The stock market is in big trouble.” Stock market advisors are turning bearish in droves. You read a lot about the major market indices breaking important 50-day and 200-day trend lines, hence even the market technicians have turned bearish.

I have been in this business a long time; about 30 years. I have never seen a stock market follow the direction of the consensus opinion. In other words, I doubt the stock market will make everyone happy and just roll over, as the great majority of investors and analysts believe it now will.

Let’s move to the companies that trade in the market…

Earnings in corporate America remain strong. The weak economy is not hitting the big public companies. We have yet to see any of the big 30 Dow Jones Industrial companies report downgrade revisions to their expected earnings this year. Corporate America sits on over $1.0 trillion in cash.

At a dividend yield of 2.65%, the Dow Jones Industrial Average is still a good alternative to the approximate 2.5% yield on the now S&P-downgraded 10-year U.S. Treasury. Stocks are not expensive in relation to their dividend yields and price/earnings multiples when compared to alternatives in the marketplace, including Treasuries.

Moving to the Fed and the government…

The government got what Wall Street wanted: a big increase in its spending limit. The government has been given permission by Congress to spend another $2.1 trillion of money it doesn’t have—make no mistake, Wall Street loves when the government has more money to spend.

The Federal Reserve, it is my belief, is getting ready to come out with some new form of QE3. Monetary and fiscal policy remains as accommodative as I have seen in three decades of following the markets. Both the Fed and government stand ready to jump in and “save” the economy again as needed. They will pull out all the stops…and that is exactly why this bear market rally has lasted as long as it has.

Finally, let’s look at what happened last year in the stock market, as investors have very short-term memories.

As of this past Friday, the Dow Jones Industrial Average was down exactly one percent for the year. Let’s take a quick look back at last year. The Dow Jones Industrial Average started 2010 at approximately the 10,500 level. Just like this year, the Dow Jones Industrial Average rallied from the beginning of 2010 to the spring of 2010. In the summer of 2010, stock markets in North America crashed. By July of 2010, the Dow Jones was down 8.5% for the year—yes, 8.5%!

We all know what happened after that. The Dow Jones rallied from a low of 9,500 in the summer of 2010 to close at 11,500 by the end of 2010. The stock market actually gained about 10% in 2010 despite a terrible summer for stocks.

My message to my readers…

Don’t panic. It is the worst thing you can do. Be realistic and look at the numbers. Stocks are only down one percent this year. If we look back at 2010, stocks were down 8.5% for year by the summer and they still came back to close a great year.

The majority of investors and analysts are bearish on stocks now—and we know from past experience that the majority opinion, often referred to as the consensus, is usually wrong.

Corporate earnings are strong. The government has loaded its gun to spend more. “Helicopter” Ben Bernanke and his crew at the Fed are ready to jump in and “save” the economy again if needed.

By this point in this report, you can tell I am not ready to give up on my belief that we are still in a bear market rally that started in March of 2009. I believe this bear market rally has more time left in its life cycle. Yes, the bear market rally will eventually end and Phase III of the bear market will eventually kick in—but it will not be that well-publicized.

If we were to look at this from a pure technical interpretation, the Dow Jones Industrial Average would have to fall below 9,658 for the bear market rally to officially end (the mid-point between the March 9, 2009 low and the May 2, 2011 high). We are far from 9,658 on the Dow Jones Industrial Average.

That, my dear reader, is the best stock market advice I can give you.

Stocks fall, you go on the Internet, and news site after news site reports that the possible bankruptcy of Greece is pushing stock prices down. Throw in a few pictures of Greek police using tear gas to deter a crowd of 20,000 at Greece’s Parliament House, as they protest against Greek austerity measures, and the story becomes believable.

Yields on Greek bonds have hit 18%. Their Greek Prime Minister is willing to quit if it helps get through the cuts in spending that Greece needs to qualify for an international bailout.

Sounds like a good story. But let’s put this picture in perspective:

The total Gross Domestic Product (GDP) of Greece is $330 billion. That’s less than 10% of the GDP of Germany and miniscule when compared to the U.S.’s GDP of $14.0 trillion.

If Greece defaults on its debt, the exposure to American banks would be approximately $40.0 billion, a number already discounted in the share prices of the bank stocks with the most exposure to a Greek default.

Hence, in this economist’s eyes, the “Greek Crisis” has very little to do with the recent stock market weakness.

Three things are going on with the market, in my opinion.

The first is simple profit taking. After rising almost 100%, the traders who enjoyed the rally in stocks for 27 months are taking some chips of the table. It’s that simple.

Second, Wall Street is playing the Fed again. Wall Street loved QE1 and QE2. But the Fed has failed to announce plans for QE3. What a great opportunity to push stock prices down to force the Fed’s hand.

Finally, too many investors and analysts turned optimistic and bullish on May 2, 2011, when the Dow Jones Industrial hit a post-crash intraday high of 12,876. Latecomers to the market got punished and the bullish sentiment has slowly been withdrawn.

Michael’s Personal Notes:

It’s a funny stock market…

The gains the market made on Tuesday, the market gave back on Wednesday. The Dow Jones Industrial Average was down 178 points yesterday. But when I went to check the prices of my gold stocks at the end of the day yesterday, they were up again!

What this tells me is that the junior and senior gold-producing stocks are putting in a base here. If you feel you’ve lost out on the gold bull market, or if you are looking for an opportunity to buy more gold-related investments at cheaper prices, we’re near the bottom here.

Where the Market Stands; Where it’s Headed:

Important: According to Investment Company Institute in Washington, investors pulled $5.46 billion out of stock mutual funds last week—the biggest withdrawal of money from stock mutual funds since the week ended December 8, 2010.

Where did stock prices go after December 8, 2010? From the period December 8, 2010 to May 2, 2011, stocks rose 12%. Investors took money out of the market…and the market rallied.

Given investors fleeing stocks and given stock advisors being at their most bearish position since September 10, 2010, I believe we have just undergone a correction in a primary bear market rally and that this oversold market will surprise on the upside.

What He Said:

“Bonds could now be a buy: Bonds rise in price when interest rates fall, as their return makes them more valuable. After a bear market in bonds that has lasted for months, the action in the bond market, as I read it, indicates that the bear market in bonds could be over. I’ve always preferred quality when buying bonds, going with government bonds over corporate bonds. If you have some cash lying around, bonds could be a great deal.” Michael Lombardi in PROFIT CONFIDENTIAL, July 24, 2006. The yield on 10-year U.S. Treasuries fell from five percent in the summer of 2006 to 2.4% in October, 2011—doubling the price of the bonds Michael recommended.