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.

Companies in the U.S., China, Japan, the U.K., and the eurozone will need a staggering $30.0 trillion in new money to refinance corporate debt within the next five years (source: Standard and Poor’s Rating Services).

Because of all the problems in the world that could prevent corporate debt from being refinanced, S&P believes a perfect credit storm could be brewing. I wholeheartedly agree with them.

I believe the eurozone mess coupled with the global economic slowdown that will eventually lead to weaker corporate profits is going to severely hamper the refinancing efforts of trillions of dollars in corporate debt.

The possible breakup of the eurozone and the continued recession in the eurozone could make the refinancing of corporate debt in those countries very difficult. The eurozone banks and the countries themselves already have finances that are very strained.

Just yesterday, we learned the European Central Bank stopped lending to some large Greek banks for the first time.

The U.K. faces similar types of issues, although not as severe as the eurozone. The U.K. is mired in recession, but does possess its own central bank that can print money to help the banking system and so the corporate debt market. Print, print, print!

China is in the enviable position of sitting on plenty of foreign reserves (U.S. dollars). If China sees its corporate debt market needs money, China can dump some of these reserves to help its banks and so its corporations.

On the other hand, Japan has massive debt problems. It will certainly print money should its corporate debt market require it.

The situation in the U.S. is very different.

U.S. non-financial corporations are in good shape, because they are holding so much money on their balance sheets. I would argue that corporations are holding money on their balance sheets because they are scared of another financial crisis like 2008.

U.S. companies don’t want to be cut out of the corporate debt market like they were in 2008, so they are sitting on a record amount of cash.

S&P notes that the biggest risks to the multi-trillion-dollar corporate debt market—an opinion I agree with—are the eurozone crisis, the slowing U.S. economy, the slowdown in China, and the continued unrest in the Middle East, which could send oil prices skyrocketing.

The amount of corporate debt that needs to be refinanced in the next five years is staggering. In our history, we never had so much corporate debt coming up for maturity at one time.

And because there are so many possible problems in the world, I wouldn’t be surprised to see the corporate debt market experience severe strain.

If this is the case, dear reader, it will further exacerbate the economic slowdown, placing us on the path to recession. Corporations create jobs and impact growth. If they can’t finance their corporate debt, the repercussions will be severe.

Michael’s Personal Notes:

How is America faring?

To find the answer, in the past month, I have visited New Jersey, New York, Boston, Palm Beach, and Miami.

Of these five cities (surprise), New York is doing the best. Almost looks like the credit crisis never happened here. Restaurants are full. A new condo building popping up at 432 Park Avenue is asking $6,000 per square foot and getting it. The housing market is hot.

In New Jersey and Boston, the housing market has improved, but it’s far from booming. People are simply happy to have jobs. The amount of money people make at the executive level (I find) is not what it used to be before the credit crisis hit. Students that are graduating with degrees are having a very difficult time finding jobs; hence they are taking transition service-oriented jobs.

Palm Beach, one of the wealthiest enclaves in America, has yet to recover from the credit crisis and from Bernie Madoff. In respect to this housing market, many multi-million-dollar estates are on the market, waiting for that sports figure, well-known entertainer or an Internet billionaire to come along.

In Miami, unemployment is a big problem. The housing market is improving, but only marginally. What’s really happened is that many foreclosures in the housing market have been absorbed. Getting financing to buy a home is difficult. Most people I talk to are still underwater on their homes (owe more than they are worth), but do not want to leave. In reality, I find it a terrible, terrible housing market.

My impression is that people in south Florida are just scraping by. Tourism is keeping Florida going. Take tourism away, and goodbye Florida.

From my various visits, my present impression is that America will not able to sustain another setback like the credit crisis of 2008. There is a growing disparity between the rich and poor with the latter living paycheck to paycheck. The housing market across the country is still in pain, with prices down about 30% since the crisis hit.

Retirees are taking part-time jobs to supplement their income, putting pressure on the strained job market.

I do not see the picture ending well. Years of zero-interest-rate policies and money printing represent attempts to help the economic situation and housing market in the immediate term, but they provide substantial long-term downside risk…as we will soon find out.

Where the Market Stands; Where it’s Headed:

Last fall, I circulated a report that stated the stock market would start to crash in the U.S. on or about April 13, 2012. I was exactly two week early. From the end of April to yesterday, the Dow Jones Industrial Average has collapsed 740 points, or about six percent.

But we should not be afraid. Yesterday, we got news that several members of the Federal Open Market Committee (the Federal Reserve) said that more monetary easing may be required. As I have been predicting for months, as soon as the stock market started to pull back, QE3 would be on the table again.

What a concept. Stock market and economy start to go down; we just print more money to get them both moving again. How long can this process go on for? How long can the Fed fight the natural forces of a secular bull market?

The bear market rally in stocks that started in March of 2009 is getting close to the end of its cycle. I have been warning my readers that the limited upside for the market may not be worth the risk.

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.

How is America faring?

To find the answer, in the past month, I have visited New Jersey, New York, Boston, Palm Beach, and Miami.

Of these five cities (surprise), New York is doing the best. Almost looks like the credit crisis never happened here. Restaurants are full. A new condo building popping up at 432 Park Avenue is asking $6,000 per square foot and getting it. The housing market is hot.

In New Jersey and Boston, the housing market has improved, but it’s far from booming. People are simply happy to have jobs. The amount of money people make at the executive level (I find) is not what it used to be before the credit crisis hit. Students that are graduating with degrees are having a very difficult time finding jobs; hence they are taking transition service-oriented jobs.

Palm Beach, one of the wealthiest enclaves in America, has yet to recover from the credit crisis and from Bernie Madoff. In respect to this housing market, many multi-million-dollar estates are on the market, waiting for that sports figure, well-known entertainer or an Internet billionaire to come along.

In Miami, unemployment is a big problem. The housing market is improving, but only marginally. What’s really happened is that many foreclosures in the housing market have been absorbed. Getting financing to buy a home is difficult. Most people I talk to are still underwater on their homes (owe more than they are worth), but do not want to leave. In reality, I find it a terrible, terrible housing market.

My impression is that people in south Florida are just scraping by. Tourism is keeping Florida going. Take tourism away, and goodbye Florida.

From my various visits, my present impression is that America will not able to sustain another setback like the credit crisis of 2008. There is a growing disparity between the rich and poor with the latter living paycheck to paycheck. The housing market across the country is still in pain, with prices down about 30% since the crisis hit.

Retirees are taking part-time jobs to supplement their income, putting pressure on the strained job market.

I do not see the picture ending well. Years of zero-interest-rate policies and money printing represent attempts to help the economic situation and housing market in the immediate term, but they provide substantial long-term downside risk…as we will soon find out.

Where the Market Stands; Where it’s Headed:

Last fall, I circulated a report that stated the stock market would start to crash in the U.S. on or about April 13, 2012. I was exactly two week early. From the end of April to yesterday, the Dow Jones Industrial Average has collapsed 740 points, or about six percent.

But we should not be afraid. Yesterday, we got news that several members of the Federal Open Market Committee (the Federal Reserve) said that more monetary easing may be required. As I have been predicting for months, as soon as the stock market started to pull back, QE3 would be on the table again.

What a concept. Stock market and economy start to go down; we just print more money to get them both moving again. How long can this process go on for? How long can the Fed fight the natural forces of a secular bull market?

The bear market rally in stocks that started in March of 2009 is getting close to the end of its cycle. I have been warning my readers that the limited upside for the market may not be worth the risk.

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.

U.S. consumer credit jumped in March 2012 by the most in over a decade (source: Bloomberg, May 7, 2012).

Sure, we heard the usual bullish economists and election-hungry politicians say, “Here’s proof that consumer spending and consumer confidence is improving.”

But a look closer look at the number reveals more of the same for consumer confidence and what’s ahead for the remainder of 2012…

The big jump in U.S. consumer credit in March didn’t come because of consumer spending; the big jump came as a result of more student loans and more car loans.

With the U.S. unemployment rate high and youth unemployment at 13.2% here in the U.S. (source: Bureau of Labor Statistics), it is no wonder people who cannot find work are returning to school. This doesn’t feel like consumer confidence to me. (Also see: U.S. Durable Goods an Ominous Sign.)

Congress is thinking of raising interest rates dramatically on new student loans taken after July of this year; hence people are jumping on the “go back to school” bandwagon now.

As for those car loans, financial company Nomura Group just released a research note stating that the average age of cars on the road in the U.S. is more than 10 years old—the oldest on record!

The research goes on to say that strong buying of new cars is probably a necessity and not a reflection of true consumer demand, because the old clunkers will simply give out at some point.

Doesn’t sound like a vote for consumer confidence or for consumer spending going forward.

I have written in these pages about multiple studies here in the U.S. that have detailed the plight of the average American; namely, dipping into their savings or borrowing to make ends meet.

There is another study that has just been released that puts a damper on the supposed consumer confidence and consumer spending recovery.

Connecticut-based LIMRA Research conducted a survey the results of which found that 49% of Americans were not saving for retirement. More than half of those who weren’t contributing said they couldn’t afford to. An incredible 56% of those surveyed, from the ages of 18 to 34, said they were currently not contributing to a pension plan.

This is a retirement crisis, as these people will have to work during their retirement to make ends meet. How can we get consumer confidence going under this scenario?

Forget what the mainstream media and politicians are telling you; this is not a sign of consumer confidence, but consumer distress. This is not a sign of future consumer spending, but of spending contraction. (See: “Economic Recovery” Theory Debunked.)

How will the balance of 2012 go? Terrible. If the economic statistics are any indication, consumer confidence seems to be an illusion. As I have been predicting, the economy will deteriorate as we move along in 2012.

A recession is sailing into America. I just can’t figure out if it coming across the Atlantic from recession-ridden Europe or across the Pacific from economically slowing China.

Michael’s Personal Notes:

Do the politicians really have any idea what is going on?

It was only a few weeks ago that the prime minister of Spain said the country’s banks were so sound that they required no government bailouts.

Fast forward…

Last week, the government of Spain was forced to provide a government bailout for Spain’s third-largest bank; the bank with the greatest exposure to the collapsing Spanish housing market.

The problem is that Spain’s economic expansion prior to 2008 was based on a housing market boom. Spain’s banks were overleveraged in their lending practices. That is, for example, they lent out $6.00 for very $1.00 of money they actually had on their books.

In good times (like in the U.S. prior to 2007), the banks can handle this leverage, because the housing market is moving up. But when the market collapses, there is no money to pay for that debt; hence the government bailouts.

Unfortunately, unlike the U.S. that can print money to bail out its banks, Spain cannot provide the government bailout money required, because it simply doesn’t have the money to do so. The (central) Bank of Spain is saying that the amount that Spain would need to put aside to help its troubled banks is €175 billion. But what the government bailout provision leaves out is that there is €1.4 trillion in loans that are vulnerable (source: Bloomberg, May 10, 2012).

A staggering amount of corporate and housing market debt is in jeopardy, because the Spanish banks are in trouble. The main reason why Spain’s banks are not making money is that Spain is in a recession. In the first two quarters of 2012, Spain’s GDP contracted 0.3%.

While the Spanish economy contracts, one-in-four people in Spain are unemployed and one-in-two young people are unemployed!

With the government admitting that economic growth is continuing to fall, this puts pressure on corporations in Spain and on their debt, which the Spanish banks are exposed to, potentially requiring further government bailouts.

The Spanish housing market has lost 30% since 2008 and shows no signs of slowing as more homes are left empty and the high unemployment rate is pushing prices lower. This means the housing market debt on the books of Spain’s banks is worth less and less.

Although the Spanish government is putting on a brave front, the only way it can support the €1.4 trillion in debt is if its revenues increase or it prints money. With one in four people unemployed in Spain, government revenues are falling, not rising. As for money printing, Spain is part of the eurozone. Germany is steadfastly against printing euros because of the inflation risk money printing presents.

If this seems like a perfect death spiral, wait; there’s more!

Germany understands what is occurring and realizes that the Spanish government is going to need a government bailout from Europe, because the Spanish government doesn’t have enough money.

Germany wants Spain to stick to the austerity measures and so reduce its budget deficit. With a contracting economy and high unemployment and with government bailouts of the banks, this will not be possible.

Yes, it is a perfect death spiral. The European Union is falling apart at the seams. This will put further pressure on the earnings of American corporations and on the U.S. stock market.

Where the Market Stands; Where it’s Headed:

We are in a bear market rally in stocks that started in March of 2009. The rally is now more than three years old, so I would classify it as a typical post-crash rally. However, the bear market rally is getting old and tired.

While the purpose of a bear market rally is to lure investors back into stocks (this rally has done an excellent job of it), there are now clear signs that economies worldwide are slowing. We are getting close to a top for stocks unless the Fed drops QE3 on us faster than we thought it would.

What He Said:

“I’m getting very worried about the state of the U.S. housing market and its ramifications on the economy. The U.S. could be headed for its first outright annual decline in home prices on record, adjusted for inflation. And I really believe this could be a catastrophe for the U.S. economy.” Michael Lombardi in PROFIT CONFIDENTIAL, August 2, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.

Do the politicians really have any idea what is going on?

It was only a few weeks ago that the prime minister of Spain said the country’s banks were so sound that they required no government bailouts.

Fast forward…

Last week, the government of Spain was forced to provide a government bailout for Spain’s third-largest bank; the bank with the greatest exposure to the collapsing Spanish housing market.

The problem is that Spain’s economic expansion prior to 2008 was based on a housing market boom. Spain’s banks were overleveraged in their lending practices. That is, for example, they lent out $6.00 for very $1.00 of money they actually had on their books.

In good times (like in the U.S. prior to 2007), the banks can handle this leverage, because the housing market is moving up. But when the market collapses, there is no money to pay for that debt; hence the government bailouts.

Unfortunately, unlike the U.S. that can print money to bail out its banks, Spain cannot provide the government bailout money required, because it simply doesn’t have the money to do so. The (central) Bank of Spain is saying that the amount that Spain would need to put aside to help its troubled banks is €175 billion. But what the government bailout provision leaves out is that there is €1.4 trillion in loans that are vulnerable (source: Bloomberg, May 10, 2012).

A staggering amount of corporate and housing market debt is in jeopardy, because the Spanish banks are in trouble. The main reason why Spain’s banks are not making money is that Spain is in a recession. In the first two quarters of 2012, Spain’s GDP contracted 0.3%.

While the Spanish economy contracts, one-in-four people in Spain are unemployed and one-in-two young people are unemployed!

With the government admitting that economic growth is continuing to fall, this puts pressure on corporations in Spain and on their debt, which the Spanish banks are exposed to, potentially requiring further government bailouts.

The Spanish housing market has lost 30% since 2008 and shows no signs of slowing as more homes are left empty and the high unemployment rate is pushing prices lower. This means the housing market debt on the books of Spain’s banks is worth less and less.

Although the Spanish government is putting on a brave front, the only way it can support the €1.4 trillion in debt is if its revenues increase or it prints money. With one in four people unemployed in Spain, government revenues are falling, not rising. As for money printing, Spain is part of the eurozone. Germany is steadfastly against printing euros because of the inflation risk money printing presents.

If this seems like a perfect death spiral, wait; there’s more!

Germany understands what is occurring and realizes that the Spanish government is going to need a government bailout from Europe, because the Spanish government doesn’t have enough money.

Germany wants Spain to stick to the austerity measures and so reduce its budget deficit. With a contracting economy and high unemployment and with government bailouts of the banks, this will not be possible.

Yes, it is a perfect death spiral. The European Union is falling apart at the seams. This will put further pressure on the earnings of American corporations and on the U.S. stock market.

Where the Market Stands; Where it’s Headed:

We are in a bear market rally in stocks that started in March of 2009. The rally is now more than three years old, so I would classify it as a typical post-crash rally. However, the bear market rally is getting old and tired.

While the purpose of a bear market rally is to lure investors back into stocks (this rally has done an excellent job of it), there are now clear signs that economies worldwide are slowing. We are getting close to a top for stocks unless the Fed drops QE3 on us faster than we thought it would.

What He Said:

“I’m getting very worried about the state of the U.S. housing market and its ramifications on the economy. The U.S. could be headed for its first outright annual decline in home prices on record, adjusted for inflation. And I really believe this could be a catastrophe for the U.S. economy.” Michael Lombardi in PROFIT CONFIDENTIAL, August 2, 2006. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.

Wow; 57.9 tons of gold bullion is a lot of gold.

And that’s exactly what they bought.

In March 2012 alone, 57.9 tons of gold bullion was purchased by world central banks. To give some perspective on this number, in 2011, central banks bought just under 440 tons of gold bullion, a rate of 37 tons a month (source: World Gold Council).

The International Monetary Fund (IMF) just reported that, in March, central banks took advantage of the lower prices in gold bullion to buy significant amounts of the metal.

Should the current rate of buying by central banks continue at this pace, central banks will purchase a staggering 700 tons of gold bullion in 2012!

As I’ve been writing in these pages, the gold demand from central banks does not include the largest central bank buyer: the People’s Bank of China. The Chinese are not reporting their gold-buying numbers to the IMF, but we know they are accumulating a staggering amount of gold bullion to back their currency, the yuan.

Over the last decade, the supply of gold bullion mined out of the ground has been fairly constant: 2,500 tons per year (source: World Gold Council). The fact is that gold bullion is difficult to find under the earth’s crust.

In 2010, central banks barely bought any gold bullion, while supply remained at 2,500 tons. In 2011, central banks bought 440 tons, with supply remaining relatively constant at roughly 2,500 tons. In 2012, at their current buying pace, central banks are on track to buy 700 tons of gold. And, if the People’s Bank of China continues to accumulate all it can, it is safe to say roughly half of the gold bullion supply will be picked up by central banks in 2012.

With supply steady and central bank buying increasing at a fast rate, gold bullion prices will have to move higher to satisfy other investor demand around the world. (See: Two Major Countries Join in China’s Quest for Gold.)

The reason central banks are buying gold bullion is that Japan’s weak economy may once force Japan to resort to money printing. The European Union is in crisis and will need to resort to money printing. The U.K. is now officially in a recession, which means it may be just a matter of time before it returns to money printing, as it has in the past in its attempt to resuscitate its ailing economy. (See: Money Printing by Any Other Name.)

As I’ve detailed in recent issues of Profit Confidential, the U.S. economy is not as strong as news headlines would suggest. As soon as the stock market starts to tank, QE3 will be announced.

With money printing seemingly the only solution to the world’s economic growth problems, central banks have decided to protect themselves by buying more gold bullion than ever before.

I suggest that my dear readers follow the example of world central banks and use weakness in the 10-year-old gold bull market as an opportunity to make gold-related investments. I would urge you to take a hard look at the senior gold mining companies; they are trading at historically low levels when compared to the current price of gold bullion.

Michael’s Personal Notes:

A perfect contrarian indicator may now be telling us that it is getting close to the time to sell stocks.

Alan Greenspan, who began the low interest rates policy at the Federal Reserve, said this week that stocks look very cheap to him, citing a low price-to-earnings (P/E) ratio for the stock market as the key reason.

He stated that stock prices will rise, as low interest rates provide few alternatives for income investors—so buy stocks now while they’re cheap.

Of course, he forgot to mention that the rate of corporate earnings growth has been decelerating at a very rapid rate. He also forgot to mention that artificially low interest rates, which he jump-started, make P/E ratios look better than they really are.

In the third quarter of 2011, corporate earnings growth, year-over-year, was 17% for the S&P 500. In the fourth quarter of 2011, year-over-year, corporate earnings growth was only 5.5%, even though interest rates remained at historic lows.

The corporate earnings numbers for the first quarter of 2012 are not all out yet, but they point to a continuation of a decelerating corporate earnings growth trend.

In my opinion, Greenspan, while Chairman of the Federal Reserve, kept interest rates at artificially low levels for a prolonged period of time after the economy had gained some traction in 2003 and 2004. Had he raised interest rates, he would have slowed the housing market, thus helping prevent the housing market from reaching bubble levels, and then crashing.

Greenspan argues in his best-selling book that the Federal Reserve is not as independent as people believe. He notes that there is huge political pressure on the Federal Reserve to keep the economic growth engine running at a fast pace.

Does this mean he is excusing himself for keeping interest rates artificially low because he had to bend to political will?

The focus when Greenspan was in office should have been on the real economy, which, as a consequence to this “political pressure,” allowed low interest rates and lax regulation to lead to the real estate crash and what is being dubbed the “Great Recession,” which we have yet to recover from here in America.

We are all entitled to an opinion. I was never a fan of Greenspan or his initial low interest rate policies. On the other hand, I’m a big fan of current Fed Chairman Ben Bernanke. I believe Bernanke saved this country from the Great Depression Part II.

As for Greenspan, when the housing market started to fall in 2006, I still remember him saying that the housing market contraction would be confined and would not affect the remainder of the economy!

Through the years, Greenspan has become a contrarian indicator for me. Just do the opposite of what he says and you’ll do fine. And if Greenspan is saying now is a good time to buy stocks, I know it’s getting close to the time to unload stocks.

Where the Market Stands; Where it’s Headed:

We are in a long-term secular bear market. Phase I of the bear market was completed when the Dow Jones Industrial Average fell from 14,164 in October of 2007 to 6,440 in March of 2009.

Phase II of the bear market started in March of 2009 and continues today. The purpose of a Phase II bear market (often referred to as a “sucker’s rally”) is to lure investors back into the stock market under the false pretense that the economy is improving.

Phase III of the bear market, the next phase, will bring stocks back down again.

What He Said:

“Recipe for Catastrophe: To me, the accelerated rate at which American consumers are spending, coupled with the drastic decline in the amount of their savings, is a recipe for a financial catastrophe.” Michael Lombardi in PROFIT CONFIDENTIAL, September 7, 2005. Michael started talking about and predicting the financial catastrophe we began experiencing in 2008 long before anyone else.