Guess Who Owns All the Houses?

So which bank owns the majority of those 800,000 homes repossessed during the credit crisis bust? Well, it’s not a bank. It’s the U.S. taxpayer. What Michael sees happening in the U.S. housing market now and in the future. So which bank owns the majority of those 800,000 homes repossessed during the credit crisis bust? Well, it’s not a bank. It’s the U.S. taxpayer.

About a third of the country’s repossessed homes, 248,000 of them, are owned by the U.S. government (Source: Bloomberg Business Week, 9/5/11).

What an absolute catastrophe for taxpayers. In its wisdom, the government created Fannie Mae and Freddie Mac as agencies to help Americans achieve the dream of homeownership. But the institutions failed miserably and were taken over by the government in 2008. Now the government is stuck with all these homes.

According to home-data supplier RealtyTrac, about one-fifth of the 3.65 million homes for sale in America are foreclosures. And, as we all know, banks pulled back on the foreclosure process late in 2010 and early in 2011, as many state governments questioned the paperwork of the banks doing the foreclosing.

What I can see:

I see more foreclosures ahead of us, as banks that pulled back on the foreclosure process start back up again. I see the government sitting on 248,000 foreclosed homes already. I see more supply and less demand for homes coming on to the market, as banks keep their lending requirements tight. I see housing pricing going nowhere except down.

U.S. mortgage rates are at their lowest levels in decades. But low rates cannot help the housing market if buyers are scared and banks want substantial down payments and strong-income candidates.

Unfortunately, longer-term, as the U.S. dollar continues to deflate in a sea of rising national debt, inflation will become a problem inAmerica, resulting in higher interest rates. If housing prices are depressed today in an environment of record-low interest rates, imagine how depressed they will become when interest rates rise.

Michael’s Personal Notes:

More of the same…

President Obama told us on Monday how he would cut deficits by $3.6 trillion over the next 10 years by cutting spending and by increasing taxes by $1.5 trillion. The President says he will veto any deficit reduction plan that doesn’t include tax hikes. The Republican-controlled Congress, on the other hand, says it will not vote in any new tax hikes. We’re headed for a stalemate, just like we had when the Democrats and Republicans couldn’t decide on raising the official government debt ceiling early this summer.

The more time there is that goes by, the more it looks like Obama will be a single-term President. I don’t believe he gets it. Since he’s been in office, his strategy has been to have government spend itself out of the economic doldrums. By the time Obama leaves office, about $5.0 trillion will be have been added to our national debt. During his four-year term, Obama will have been responsible for adding more debt to this nation that any other President in American history.

The answer is not more government programs, more spending, and higher taxes. The answer to getting the American economic machine back on track is less government spending and lower taxes, the opposite of what the Obama Administration has done so far. Let the economy take care of itself by helping it, by reducing the tax burden to stimulate businesses, which will in turn create jobs.

Where the Market Stands; Where it’s Headed:

A bear market rally in stocks that started in March of 2009 remains intact. While the rally stalled this summer (as it did in the summer of 2010), there are few investment alternatives to stocks. Bonds yields are too low to provide any risk/reward competition to equities. The real estate market remains depressed and unattractive.

The Dow Jones Industrial Average opens this morning down 1.3% for 2011. I believe there is sufficient negative sentiment amongst investors and stock advisors to push stock prices higher.

What He Said:

“The Real Threat to the Economy: U.S. retail sales are falling, the producer price index is crashing, house prices, car prices are all falling—and no one is talking about deflation but me. Fed governors are still talking about inflation—they’ve got it wrong. There’s no need for me to get into the dangers of deflation, as I’ve written about them (many times) before. Let’s just put it this way: deflation is about the worst economic state a country will experience. The risks to the U.S.economy in 2007 are greater than I’ve seen in years.” Michael Lombardi in PROFIT CONFIDENTIAL, November 15, 2006. Michael was one of the first to warn of deflation. By late 2008, world economies were embedded in their worst state of deflation since the Great Depression.