Lombardi: Stock Market Commentary & Forecasts, Financial & Economic Analysis Since 1986

Housing Market

The housing market is comprised of buyers and sellers of homes. Information on the housing market encompasses the supply and demand for homes as well as the inventory level of unsold homes. In markets around the country and different nations, you will have a natural progression of demand and supply. In some markets, there are new citizens moving to the city creating demand and, unless there is enough supply to match this demand, prices will rise. Income levels and mortgage rates also play a role in determining how many transactions occur in any given housing market.

Movie Tickets and New Homes: Why They Are Both in Trouble

By for Profit Confidential

The Untold Story of the Pinned-Down U.S. ConsumerIn 2013, consumer spending accounted for 67% of U.S. gross domestic product. (Source: Federal Reserve Bank of St. Louis web site, last accessed April 2, 2014.) It’s plain and simple: economic growth cannot be achieved unless consumers are spending.

And unfortunately, higher prices and lower discretionary spending are putting the brakes on consumer spending here in 2014.

The Motion Picture Association of America says box office sales in the U.S. economy came in at $10.9 billion in 2013—up only one percent from 2012 and up just three percent from 2009. But here comes the kicker: the sales increase was due to higher ticket prices. The number of tickets sold for Hollywood movies in 2013 was down 1.5% from 2012 and six percent from 2009! (Source: Motion Picture Association of America, Inc., March 25, 2014.)

And the U.S. housing market is getting into trouble, too, as consumer spending pulls back. The chart below is of new-home sales in the U.S. economy from the spring of 2012 until now.

Houses Sold - New One Family ChartChart courtesy of www.StockCharts.com

You will quickly see from the chart that new-home sales in the U.S. economy peaked in late 2012/early 2013 and have come down since. Existing-home sales are also under stress and well below their post-Credit Crisis peak.

Why does the housing market matter? When homebuyers move into their new homes, they buy things like lawnmowers, appliances, furniture, and more. With home sales declining, it suggests consumer spending on these items will not be robust in 2014.

Dear reader, consumer spending patterns in the U.S. economy show troubling trends in the making. Sure, I talked today about how movie tickets … Read More

The Stock Market Needs to Do This in 2014 Before I Invest More in It

By for Profit Confidential

Why Investors Need to See It to Believe It in 2014This is an odd stock market. On one hand, you don’t want to miss out on any of the upward moves, which is why you should continue to ride the gains; on the other hand, you also want to make sure you have an exit plan in place. (See “Time for Investors to Create an Exit Strategy?”)

As we move toward the end of the first quarter, the one thing that is clear is the difference in the market behavior this year versus the same time in 2013, when everything was moving rapidly higher with minimal regard for the underlying market fundamentals.

As I wrote in these pages in January, this will be a more difficult market in which to make money compared to the previous few years.

The move by the Federal Reserve under Janet Yellen to continue to dismantle the quantitative easing that was put into place by former Fed Chair Ben Bernanke a few years ago has continued into 2014 with the third straight month of cuts to the central bank’s monthly bond buying.

The gradual $10.0-billion-per-month reduction in the Fed’s monthly bond buying will likely continue until the program reaches zero early in the fourth quarter, unless, of course, the economic renewal stalls.

What this means for the stock market is that the drying up of easy money from the Fed will continue to put a damper on the money available for speculating on stocks, especially those in the emerging markets. And as bond yields rise, there will be more of a shift to bonds.

We are already seeing the impact on the … Read More

Are We Really Headed for Deflation?

By for Profit Confidential

Forget Deflation; Inflation Is Becoming a Big ProblemThe Bureau of Labor Statistics (BLS) reports inflation in the U.S. economy increased by 0.1% in February from the previous month. (Source: Bureau of Labor Statistics, March 18, 2014.) As usual, these numbers have again brought up the theory of deflation—a period when general prices decline.

Reasons for the deflation fear? In 2013, inflation for the entire year was 1.5%. In 2012, it was 1.9%. Going back further, in 2011, it was three percent. If we extrapolate the inflation numbers from January and February of this year and assume the increase will be the same (0.1%) throughout the year, we are looking at an inflation rate of 1.2% for 2014.

Wells Fargo Securities LLC has gone one step further. Economists at the firm believe there’s a 66% chance that deflation in the U.S. economy will prevail and these chances have been increasing since 2010. (Source: Bloomberg, February 21, 2014.)

To me, this is sheer nonsense!

The reality of the matter is that the inflation numbers reported by the BLS exclude changes in food and energy prices—the most important things consumers use on a daily basis. When you include food and energy, inflation is running at a much higher rate.

The prices of basic commodities are skyrocketing. Take corn prices, for example: since the beginning of the year, corn prices are up more than 15%. Wheat prices are up almost 20% year-to-date. When you look at meat prices, such as lean hogs, you will see they have increased by more than 45% since January.

As I see it, deflation is nothing but a farfetched idea for the U.S. economy. (In a … Read More

Why the U.S. Housing Market Is Headed for Trouble in 2014

By for Profit Confidential

The 2014 U.S. Housing Market Recovery That Never HappenedCompared to the past two years, the U.S. housing market will not have a great year in 2014.

In fact, key indicators are now pointing to a top in the housing market recovery:

The National Association of Home Builders/Wells Fargo Housing Market Index fell to 47 in March, coming down more than 16% from 56 in January. (Source: National Association of Home Builders, March 17, 2014.) When this index is below 50, homebuilders view housing market conditions to be poor. This tells me that those who are closest to the housing market—the homebuilders—are becoming concerned.

And existing-home sales are declining. Existing-homes sales in the U.S. housing market fell 7.1% in February from a year ago and registered at the lowest pace since July of 2012. January’s existing-home sales were disappointing, too.

The backbone of any housing market recovery, first-time homebuyers continue to be absent from the recovery. The president of the National Association of Realtors was quoted as saying, “The biggest problems for first-time buyers are tight credit and limited inventory in the lower price ranges… In our recent consumer survey, 56% of younger buyers who took longer to save for a down payment identified student debt as the biggest obstacle.” (Source: “February Existing-Home Sales Remain Subdued,” National Association of Realtors, March 20, 2014.)

(At least he didn’t blame the poor weather conditions as the reason homes sales declined in February!)

Sadly, potential home buyers have more troubles coming their way, as interest rates are expected to rise. Between February of 2013 and February of 2014, the 30-year fixed mortgage rate, tracked by Freddie Mac, has increased by 22%, from … Read More

Is the Housing Market Really a Hot Spot for Investors?

By for Profit Confidential

Urban Housing Market Booming with PotentialNew York City is a colossal urban jungle, but what strikes me is the surging housing market rental prices in not only Manhattan, but also the strong price appreciation in the borough of Brooklyn.

Average home prices peaked around $550,000 in early 2006, prior to a steady decline since then. Yet if you look at regions, especially Manhattan and Brooklyn, the demand for housing and rentals is strong, and this has created a surge in rental prices.

What has been apparent in New York City over the past decade has been the clean-up of the city, along with the rapid development in the surrounding areas close to Manhattan, such as Brooklyn. A look at Brooklyn shows an area that is rapidly growing with multiple new businesses, hotels, and housing market projects reclaimed from former industrial lands.

Whole Foods Market, Inc. (NASDAQ/WFM), for instance, built its largest outlet in Brooklyn that was previously on industrial land. There are now plans for further development in the area. The end result has been a boom in the housing market in Brooklyn for both property buyers and renters. A look at the rental prices in Brooklyn show rental rates as high as $5,000 a month or more for a two-bedroom apartment. The former docklands in Brooklyn have been transformed into a beautiful urban area with paths, expensive condos, and a great view of New York City.

The rise is staggering and clearly indicates a booming housing market there.

The situation in Brooklyn and New York City is indicative of many areas across the country.

Just take a look at the S&P Case-Shiller Home Price … Read More

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Movie Tickets and New Homes: Why They Are Both in Trouble

By for Profit Confidential

The Untold Story of the Pinned-Down U.S. ConsumerIn 2013, consumer spending accounted for 67% of U.S. gross domestic product. (Source: Federal Reserve Bank of St. Louis web site, last accessed April 2, 2014.) It’s plain and simple: economic growth cannot be achieved unless consumers are spending.

And unfortunately, higher prices and lower discretionary spending are putting the brakes on consumer spending here in 2014.

The Motion Picture Association of America says box office sales in the U.S. economy came in at $10.9 billion in 2013—up only one percent from 2012 and up just three percent from 2009. But here comes the kicker: the sales increase was due to higher ticket prices. The number of tickets sold for Hollywood movies in 2013 was down 1.5% from 2012 and six percent from 2009! (Source: Motion Picture Association of America, Inc., March 25, 2014.)

And the U.S. housing market is getting into trouble, too, as consumer spending pulls back. The chart below is of new-home sales in the U.S. economy from the spring of 2012 until now.

Houses Sold - New One Family ChartChart courtesy of www.StockCharts.com

You will quickly see from the chart that new-home sales in the U.S. economy peaked in late 2012/early 2013 and have come down since. Existing-home sales are also under stress and well below their post-Credit Crisis peak.

Why does the housing market matter? When homebuyers move into their new homes, they buy things like lawnmowers, appliances, furniture, and more. With home sales declining, it suggests consumer spending on these items will not be robust in 2014.

Dear reader, consumer spending patterns in the U.S. economy show troubling trends in the making. Sure, I talked today about how movie tickets … Read More

The Stock Market Needs to Do This in 2014 Before I Invest More in It

By for Profit Confidential

Why Investors Need to See It to Believe It in 2014This is an odd stock market. On one hand, you don’t want to miss out on any of the upward moves, which is why you should continue to ride the gains; on the other hand, you also want to make sure you have an exit plan in place. (See “Time for Investors to Create an Exit Strategy?”)

As we move toward the end of the first quarter, the one thing that is clear is the difference in the market behavior this year versus the same time in 2013, when everything was moving rapidly higher with minimal regard for the underlying market fundamentals.

As I wrote in these pages in January, this will be a more difficult market in which to make money compared to the previous few years.

The move by the Federal Reserve under Janet Yellen to continue to dismantle the quantitative easing that was put into place by former Fed Chair Ben Bernanke a few years ago has continued into 2014 with the third straight month of cuts to the central bank’s monthly bond buying.

The gradual $10.0-billion-per-month reduction in the Fed’s monthly bond buying will likely continue until the program reaches zero early in the fourth quarter, unless, of course, the economic renewal stalls.

What this means for the stock market is that the drying up of easy money from the Fed will continue to put a damper on the money available for speculating on stocks, especially those in the emerging markets. And as bond yields rise, there will be more of a shift to bonds.

We are already seeing the impact on the … Read More

Are We Really Headed for Deflation?

By for Profit Confidential

Forget Deflation; Inflation Is Becoming a Big ProblemThe Bureau of Labor Statistics (BLS) reports inflation in the U.S. economy increased by 0.1% in February from the previous month. (Source: Bureau of Labor Statistics, March 18, 2014.) As usual, these numbers have again brought up the theory of deflation—a period when general prices decline.

Reasons for the deflation fear? In 2013, inflation for the entire year was 1.5%. In 2012, it was 1.9%. Going back further, in 2011, it was three percent. If we extrapolate the inflation numbers from January and February of this year and assume the increase will be the same (0.1%) throughout the year, we are looking at an inflation rate of 1.2% for 2014.

Wells Fargo Securities LLC has gone one step further. Economists at the firm believe there’s a 66% chance that deflation in the U.S. economy will prevail and these chances have been increasing since 2010. (Source: Bloomberg, February 21, 2014.)

To me, this is sheer nonsense!

The reality of the matter is that the inflation numbers reported by the BLS exclude changes in food and energy prices—the most important things consumers use on a daily basis. When you include food and energy, inflation is running at a much higher rate.

The prices of basic commodities are skyrocketing. Take corn prices, for example: since the beginning of the year, corn prices are up more than 15%. Wheat prices are up almost 20% year-to-date. When you look at meat prices, such as lean hogs, you will see they have increased by more than 45% since January.

As I see it, deflation is nothing but a farfetched idea for the U.S. economy. (In a … Read More

Why the U.S. Housing Market Is Headed for Trouble in 2014

By for Profit Confidential

The 2014 U.S. Housing Market Recovery That Never HappenedCompared to the past two years, the U.S. housing market will not have a great year in 2014.

In fact, key indicators are now pointing to a top in the housing market recovery:

The National Association of Home Builders/Wells Fargo Housing Market Index fell to 47 in March, coming down more than 16% from 56 in January. (Source: National Association of Home Builders, March 17, 2014.) When this index is below 50, homebuilders view housing market conditions to be poor. This tells me that those who are closest to the housing market—the homebuilders—are becoming concerned.

And existing-home sales are declining. Existing-homes sales in the U.S. housing market fell 7.1% in February from a year ago and registered at the lowest pace since July of 2012. January’s existing-home sales were disappointing, too.

The backbone of any housing market recovery, first-time homebuyers continue to be absent from the recovery. The president of the National Association of Realtors was quoted as saying, “The biggest problems for first-time buyers are tight credit and limited inventory in the lower price ranges… In our recent consumer survey, 56% of younger buyers who took longer to save for a down payment identified student debt as the biggest obstacle.” (Source: “February Existing-Home Sales Remain Subdued,” National Association of Realtors, March 20, 2014.)

(At least he didn’t blame the poor weather conditions as the reason homes sales declined in February!)

Sadly, potential home buyers have more troubles coming their way, as interest rates are expected to rise. Between February of 2013 and February of 2014, the 30-year fixed mortgage rate, tracked by Freddie Mac, has increased by 22%, from … Read More

Is the Housing Market Really a Hot Spot for Investors?

By for Profit Confidential

Urban Housing Market Booming with PotentialNew York City is a colossal urban jungle, but what strikes me is the surging housing market rental prices in not only Manhattan, but also the strong price appreciation in the borough of Brooklyn.

Average home prices peaked around $550,000 in early 2006, prior to a steady decline since then. Yet if you look at regions, especially Manhattan and Brooklyn, the demand for housing and rentals is strong, and this has created a surge in rental prices.

What has been apparent in New York City over the past decade has been the clean-up of the city, along with the rapid development in the surrounding areas close to Manhattan, such as Brooklyn. A look at Brooklyn shows an area that is rapidly growing with multiple new businesses, hotels, and housing market projects reclaimed from former industrial lands.

Whole Foods Market, Inc. (NASDAQ/WFM), for instance, built its largest outlet in Brooklyn that was previously on industrial land. There are now plans for further development in the area. The end result has been a boom in the housing market in Brooklyn for both property buyers and renters. A look at the rental prices in Brooklyn show rental rates as high as $5,000 a month or more for a two-bedroom apartment. The former docklands in Brooklyn have been transformed into a beautiful urban area with paths, expensive condos, and a great view of New York City.

The rise is staggering and clearly indicates a booming housing market there.

The situation in Brooklyn and New York City is indicative of many areas across the country.

Just take a look at the S&P Case-Shiller Home Price … Read More

Why the U.S. Housing Market Recovery Will Falter This Year

By for Profit Confidential

Housing Market Recovery in JeopardyThe chart below is of the S&P Case-Shiller Home Price Index, an index that tracks home prices in the U.S. housing market. As the chart shows, from their peak in 2007 to their low in late 2011, U.S. homes prices fell by about 30%. Since then, prices in the housing market have improved, but they are still down about 20% compared to 2007. Basically, home prices have recouped only one-third of their losses from the 2007 real estate crash.

Yes, the U.S. housing market has regained some lost ground, but it’s far from being back to where it was in 2007. And I’m very worried about the pace of the housing market recovery; I feel that the recovery is in jeopardy.

HPI SP Case-Shiller Home Price Index Chart

Chart courtesy of www.StockCharts.com

Consider this: the interest rate on the 30-year fixed mortgage tracked by Freddie Mac increased to 4.43% in January of this year from 3.41% in January of 2013. (Source: Freddie Mac web site, last accessed February 26, 2014.) While there hasn’t been much mainstream media coverage on this, mortgage rates have increased by 30% in one year’s time. With the Federal Reserve cutting back on its quantitative easing program, interest rates are expected to continue their path upwards in 2014.

Higher interest rates are pushing would-be homebuyers away from the housing market. The U.S. Mortgage Bankers Association reported last week that its index, which tracks mortgage activity (of both refinanced and new home purchases), fell 8.5% in the week ended February 21. (Source: Reuters, February 26, 2014.)

And new homebuilders are seeing demand from homebuyers decline in the housing market as well. While presenting … Read More

Bond Market: Something Wicked Cometh This Way

By for Profit Confidential

Bond Investors to Face Severe Losses in 2014The bond market is in trouble.

As we all know, the Federal Reserve has been the biggest driver of bonds since the financial crisis. The central bank lowered its benchmark interest rate to near zero, then started quantitative easing, all of which resulted in the bond market soaring as yields collapsed to multi-decade lows.

The chart below will show you what’s happened to the U.S. bond market since the mid-1970s.

As you can see from the chart, the declining yields on bonds stopped in the spring of 2013 and have increased sharply since then.

30-Year T-Bond Yield Chart

Chart courtesy of www.StockCharts.com

What’s next for bonds?

The Federal Reserve is slowly taking away the “steroids” that boosted the bond market. The central bank is now printing $65.0 billion of new money a month instead of the $85.0 billion it was printing just a few months back. And now we hear the Federal Reserve will be slowing its purchases by $10.0 billion a month throughout 2014.

Since May of last year alone, when speculation started that the Federal Reserve would cut back on its money printing program, bond yields skyrocketed and bond investors panicked.

According to the Investment Company Institute, investors sold $176 billion worth of long-term bond mutual funds between June and December of last year. (Source: Investment Company Institute web site, last accessed February 26, 2014.) I would not be surprised if withdrawals from bond mutual funds are even bigger this year.

And China is slowly exiting the U.S. bond market, too. According to the U.S. Department of the Treasury, in December, China sold the biggest amount of U.S. bonds since 2011. In … Read More

Investment Opportunities Left in Housing After Weak January Sales?

By for Profit Confidential

Housing Market Area with the Best Investment OpportunitiesThe harsh winter conditions have negatively impacted the housing market, but the underlying long-term fundamentals appear to be in place and have not worsened.

If the economic renewal continues, my sense is that the housing market will strengthen as we move along this year, which means continued opportunities in the housing market—but where?

While we were straddled with soft housing starts (-16%) and building permits (-5.4%) in January, homebuilders continue to report good growth and order backlogs. With the continued historically low interest rates, the housing market has been able to grow.

Other than the homebuilders, I like the area of home construction and renovation supplies. While January existing-home sales were down slightly from December, homeowners seem to be spending more on renovating the homes they already bought.

In my opinion, the “Best of Breed” in the building suppliers space is The Home Depot, Inc. (NYSE/HD), which beat earnings-per-share (EPS) estimates in its fourth-quarter earnings season but fell slightly short on revenues. On the plus-side, The Home Depot saw a 4.4% rise on companywide same-store sales in the fourth quarter, including a 4.9% year-over-year rise in the U.S. housing market. Those are pretty good metrics, despite some stalling in the housing market. And while I continue to rate The Home Depot as the top in its class, its market cap of more than $110 billion is huge.

What I suggest you do in the housing market regarding the construction and renovation suppliers is to take a look at small-cap Builders FirstSource, Inc. (NASDAQ/BLDR), which operates out of Dallas, Texas and has a much more manageable market cap of $838 … Read More

Why Are So Many Homebuyers Backing Out of Their Contracts?

By for Profit Confidential

Homebuilders Post Steepest Decline in Confidence Ever RecordedJust as the majority of Americans think the U.S. jobs market is improving, there’s a notion in the air that the U.S. housing market has rebounded and is healthy again. I don’t believe this to be true.

Just like the government’s official unemployment number is manipulated because it excludes people who have given up looking for work, when we took a closer look at the stats we hear about home prices, new home sales, and existing home sales, we didn’t like what we found in them.

Home prices increased to unprecedented levels in 2005. At social events back then, everyone talked about how much their home or vacation property had gone up in value and how they were getting deeper into the housing market. Few talked about the reckless lending activities of the banks that were the cause for the rise in home prices.

We now hear new homes are being sold at a new record pace. Buyers are apparently rushing to buy houses again, and the housing market is hot once more. Sadly, underlining the strong sales of homes, the number of cancelled sales orders compared to overall sales (commonly referred to as the cancellation rate) is going through the roof.

In 2013, D.R. Horton, Inc. (NYSE/DHI) had more cancelled orders than it did in 2012—7,751 cancelled contracts to buy homes compared to 6,657 in 2012. The cancellation rate for this homebuilder in 2013 was 24%. (Source: D.R Horton, Inc. web site, last accessed February 18, 2014.)

Other homebuilders are having the very same problem. KB Home (NYSE/KBH) reports its cancellation rate in 2013 reached 32%—that means one out … Read More

The Best Investment You Can Make in 2014?

By for Profit Confidential

What Happened Last Time Gold Had a Bad YearTo say the very least, 2013 was an interesting year for gold bullion. The precious metal’s price surprised gold bugs and declined 24%.

As 2013 progressed, we heard calls for the yellow metal to fall even lower in price. The stocks of gold producers were slammed. Equity research departments at big banks like The Goldman Sachs Group, Inc. (NYSE/GS) called gold bullion a slam-dunk sell (and the last time I checked, their opinion hasn’t changed).

In the midst of all this, a very important phenomenon was forgotten: gold bullion prices are no stranger to price declines. In the table below, I’ve compiled a list of every period since 1974 when gold prices fell more than 20% and what happened after the decline.

Year, % Drop in Gold Prices Year, % Increase After Drop
1974-1976 declined by 45.67% 1976-1980 increased by 705%
1980-1982 declined by 63.84% 1982-1983 increased by 71.8%
1983-1985 declined by 45.17% 1985-1987 increased by 76.7%
1987-2001 declined by 48.88% 2001-2008 increased by 291.38%
Mar. 2008-Nov. 2008 declined by 28.8% Nov. 2008-2011 increased by 169.56%

Data source: www.StockCharts.com, last accessed February 6, 2014.

The table above illustrates that the bigger the decline in gold bullion prices, the greater the ensuing rebound.

Since gold bullion prices fell in 2013, gold miners have pulled back on operations at mines where $1,200-an-ounce gold no longer justifies production. This has resulted in a reduction in the supply of newly mined gold.

And while the supply of gold bullion is under pressure, demand for the precious metal keeps increasing. In China, both consumers and the country’s central bank have become gold hoarders over … Read More

Exodus Away from U.S. Dollar On?

By for Profit Confidential

Fundamentals That Once Supported Greenback Damaged“Michael, you don’t know what you are talking about.” That’s pretty much what I was told back in 2005 and 2006 when I was warning extensively that the U.S. housing market would collapse.

When a boom in any form of investment is going on, and millions of people are participating in that boom, it’s hard to convince people the boom is about to bust. At a certain point, we start hearing that old saying “it’s different this time,” which means people simply don’t believe the boom will end. They try to legitimize it.

But like all booms, the bust did happen. The housing market went bust big-time, and we all know what happened after that.

Today, there’s another asset class that is booming, that investors large and small are literally running to. No, I’m not talking about the stock market (it’s already in bust mode). I’m talking about the greenback, the good old U.S. dollar.

In recent days, and despite trillions of dollars in new money created by the Federal Reserve, the U.S. dollar has gained traction as investors search for safety amid the collapsing emerging markets.

Personally, I think investors are wrong to find security in the U.S. dollar. In fact, I see its days as the leading currency of the world being numbered.

But the fundamentals that make the dollar a “safe haven” are damaged. Aside from the fact the Federal Reserve has printed trillions in new money and the government continues to take on never-to-be-repaid debt daily, central banks around the world are reducing the amount of the reserves they keep in U.S. dollars.

Please look … Read More

Why I Fell Asleep Last Night During the State of the Union

By for Profit Confidential

The Borrower of Last ResortLast night started out like every other State of the Union address I’ve seen…

The President told us all the good stuff about the U.S. economy, like how American corporate profits are at a record high, how the stock market is at record highs, how millions of new jobs have been created since the Credit Crisis of 2008, how the housing market is turning around, and on and on.

Like a good old politician, Obama spun the facts to give the viewer the impression his Administration has done a great job at turning the U.S. economy around.

What Obama, who now has a very low 43% job approval rating (Source: CNN Breaking News alert, January 28, 2014.), didn’t say about the U.S. economy—and which no other politician likely would—is that:

None of his 2013 State of the Union “priorities” made it through Congress.

American corporations ended 2013 with the slowest earnings growth rate since 2009.

The stock market has become a Federal Reserve-induced bubble.

The majority of jobs created in the U.S. economy since the Credit Crisis have been in the low-paying sectors of the retail and service (restaurant) sectors.

A record 47.41 million Americans, or 23.05 million households, in the U.S. economy are using some form of food stamps (Source: United States Department of Agriculture, January 10, 2014.)

The number of first-time home buyers in the housing market is going the wrong way. In December, first-time home buyers accounted for a near-record low of only 27% of all the existing-home sales transactions. (Source: National Association of Realtors, January 23, 2014.)

Midway through the speech, I nodded off. I … Read More

If You Are in the Housing Market, You Need to Read This

By for Profit Confidential

Leading Indicator Flashes Red Warning Sign for HousingTo see where the U.S. housing market is headed, we really need to look at what real home buyers—those who are planning to stay in their home for the long term—are doing. Institutional investors, who came into the housing market in 2012 and bought massive amounts of homes, are speculators; they’ll quickly rush out of the housing market if they can get a profit or if they can get a better return on their money elsewhere.

Right now, real home buyers are not very active in the U.S. housing market, as they face challenges. In fact, it looks like the number of real home buyers in the housing market is declining.

Between January and December of 2013, the 30-year fixed mortgage rate tracked by Freddie Mac increased by 31%. The 30-year fixed mortgage rate stood at 3.41% in January, and it increased to 4.46% by December. (Source: Freddie Mac web site, last accessed January 15, 2014.) Higher interest costs are a real challenge for home buyers.

As we can see from the chart below, there was a sudden change in the direction of interest rates after the Federal Reserve hinted in the spring of 2013 that it would start to “taper” its quantitative easing (money printing) program. It is widely expected that the Fed will continue to taper throughout 2014 as it drastically pulls back on its massive money printing scheme.

30-Year T-Bond Yield Chart

Chart courtesy of www.StockCharts.com

Another challenge home buyers face is stagnant growth in their incomes. In 2013, average hourly earnings of production and nonsupervisory employees in the U.S. increased by only 1.85%—less than real inflation. (Source: Federal Reserve Bank … Read More

Pathetic December Job Numbers Proof 2014 to Be Challenging Year

By for Profit Confidential

100114_PC_lombardiWhat happened?

The Bureau of Labor Statistics (BLS) reported this morning that only 74,000 jobs were added to the U.S. economy in December. Most economists were expecting 200,000 jobs to be created in December—way off reality. The December increase in U.S. payrolls was the slowest pace in almost three years.

But it gets worse…

The underemployment rate, which I consider the “real” measure of the jobs market in the U.S. economy, was unchanged in December at 13.1%. The underemployment rate includes those people who have given up looking for work and those people who have part-time jobs but want full-time jobs.

The table below shows the official unemployment rate versus the underemployment rate for 2013.

U.S. Official Unemployment Rate vs. Underemployment
Rate, January-December 2013

Month Revised Official Unemployment Rate (U3) Underemployment Rate (U6)
January 7.90% 14.40%
February 7.70% 14.30%
March 7.50% 13.80%
April 7.50% 13.90%
May 7.50% 13.80%
June 7.50% 14.30%
July 7.30% 14.00%
August 7.20% 13.60%
September 7.20% 13.60%
October 7.20% 13.70%
November 7.00% 13.10%
December 6.70% 13.10%
 
% Change Jan.-Dec. -15.19% -9.03%

Data source: Federal Reserve Bank of St. Louis web site,
last accessed January 10, 2014.

What the above chart shows is that despite what we heard about the U.S. economy improving in 2013 and despite the Federal Reserve creating over $1.0 trillion in new money in 2013 to help the economy, the “real” unemployment rate declined by less than 10% in 2013, from 14.4% at the beginning of the year to 13.1% by the end of the year. The number of unemployed people in the U.S. stands at a still-staggering 10.4 million.

Of the 74,000 new … Read More

Why Are Car Sales Down So Much?

By for Profit Confidential

Soft Auto Sales Just the Beginning of a Poorer 2014All of a sudden, auto sales are declining…

Auto sales in the U.S. economy declined to an annual rate of 15.4 million units in December. In November, this number stood at 16.41 million units—a decline of more than six percent. (Source: Motor Intelligence, January 3, 2014.) Analysts were caught off guard by the decline in December auto sales; they were expecting an increase!

I see the decline in auto sales as being directly related to rising interest rates. And it’s not going to get any better.

For years now (since the Credit Crisis), auto sales have been increasing due to low interest rates. It’s very similar to what happened to the housing market prior to 2007. More and more people went on a house-buying spree when the mortgage rates were at record lows. When mortgage rates started to increase in 2007, the already-inflated housing market got hit hard. The same thing is happening to auto sales now.

Interest rates are rising again. Look at the chart below of the bellwether 10-year U.S. Treasury. Since November, the yield on the 10-year U.S. Treasury has gone up roughly 20%. The higher interest rates go, the weaker auto sales will get. (And we can already see the impact on the auto stocks. The stocks of America’s major car makers are off five percent from their 2013 peak, but key stock indices are near their peaks.)

10 Year Treasury Note Yield Chart

Chart courtesy of www.StockCharts.com

Rising interest rates will have the biggest impact on auto loans given to subprime borrowers (those who have a lower credit standing).

My readers should note that the delinquency rates on auto loans … Read More

The Great Crash of 2014

A stock market crash bigger than what happened in 2008 and early 2009 is headed our way.

In fact, we are predicting this crash will be even more devastating than the 1929 crash…

…the ramifications of which will hit the economy and Americans deeper than anything we’ve ever seen.

Our 27-year-old research firm feels so strongly about this, we’ve just produced a video to warn investors called, “The Great Crash of 2014.”

In case you are not familiar with our research work on the stock market:

In late 2001, in the aftermath of 9/11, we told our clients to buy small-cap stocks. They rose about 100% after we made that call.

We were one of the first major advisors to turn bullish on gold.

Throughout 2002, we urged our readers to buy gold stocks; many of which doubled and even tripled in price.

In November of 2007, we started begging our customers to get out of the stock market. Shortly afterwards, it was widely recognized that October 2007 was the top for stocks.

We correctly predicted the crash in the stock market of 2008 and early 2009.

And in March of 2009, we started telling our readers to jump into small caps. The Russell 2000 gained about 175% from when we made that call in 2009 to today.

Many investors will find our next prediction hard to believe until they see all the proof we have to back it up.

Even if you don’t own stocks, what’s about to happen will affect you!

I urge you to be among the first to get our next major prediction.
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