I was in Miami last weekend and realtor after realtor was telling me that the biggest condo building bust in history has bottomed out and is rebounding with the U.S. housing market. Buyers are snapping up properties, one-third of them paying cash, and the best deals are gone.
Not sure I believe them. Or should I rephrase that as, “Not sure they understand.”
We all remember when banks pulled way back on home foreclosures in 2010, as they were accused of not having their paperwork in order when the foreclosed. This put a temporary halt to U.S. home foreclosures. Now they’ve cleaned up their act and big U.S. banks are actually starting to accelerate their foreclosures.
In the third quarter of 2011, U.S. banks started foreclosures on more homes than at any other time in the past 12 months. Banks have a backlog of foreclosures in the U.S. housing market to start work on as a result of the banks cooling foreclosures during the period they were being accused of faulty foreclosures practices.
According to the National Association of Realtors, U.S. home prices fell in three-quarters of all metropolitan areas in the third quarter of 2011. The median price of homes in the U.S. was down 4.7% in the third quarter of 2011, compared to the same period of 2010. Foreclosure sales still make up 30% of all U.S. housing market activity at the resale level.
Hence, we have a situation where more foreclosed homes are coming onto the U.S. housing market and U.S. home prices are still dropping. But this is not the real problem.
If the Federal Reserve could keep long-term interest rates down for the next 10 to 20 years, the U.S. housing market would have a chance to recover. Unfortunately, the Fed can’t keep rates that low for that long… Interest rates will have to rise sooner rather than later, as inflation becomes a problem in America (see Economic Analysis: And Then Came Rapid Inflation). Rising interest rates will only depress the U.S. housing market further. This is what realtors don’t understand…the best bargains may lay further ahead.
There is one strategy investors have (or at least this investor has) been following for 10 years to make money in this treacherous market.
The strategy is quite elementary. Every time the price of gold bullion moves down three percent, I like to go in and buy more gold-related investments. This strategy has worked for 10 years and I still see the opportunity continuing in buying gold stocks when the yellow metal has sharp, one-day corrections.
I need to tell you, dear reader, I laugh when I read reports try to explain why the price of gold bullion is falling or rising. Yesterday, a well-known financial site said that gold bullion was down sharply, because rating agency Fitch said that big U.S. banks could see their credit ratings downgraded because of their exposure to the eurozone’s debt crisis. How ridiculous.
It doesn’t matter to me why gold bullion prices are rising or falling on a daily basis. What matters to me is the long-term direction of the financial markets. We know that the Federal Reserve initiated an unprecedented expansion of the money supply in the U.S. over the past three years. We also know that many eurozone members need a big bailout from the European Central Bank. The numbers I have read say that the financially challenged eurozone countries need a $2.0-trillion bailout.
The bottom line: the more fiat money created in America or Europe, the less the value of money, the greater the risk of inflation, and the higher the price of gold bullion goes. (See Top Five Reasons Why Gold Bullion Prices Will Move Even Higher.)
The real reason gold bullion goes up or down daily? I believe investors and traders are simply taking the opportunity to take some profits off the table. As gold bullion prices decline, gold bugs move in and buy more, pushing the prices of gold stocks up.
Yesterday, the December gold futures contract fell $54.40 to $1,719.90 an ounce…what an opportunity for investors to jump in and buy more momentarily depressed gold stocks! And talking about gold stocks, I was very impressed Thursday that, in spite of gold bullion being down three percent for the day, gold stocks did not collapse as they normally would on a day where gold bullion is down over $50.00 an ounce.
While I’ll talk more about this next week, world central banks bought more gold bullion in the third quarter ended September 30, 2011 than in any other quarter in the past 10 years! I wonder why central banks are suddenly running out and buying gold? Must be all those issues of PROFIT CONFIDENTIAL (10 years of them) where I’ve been pushing gold-related investments.
Next week, I will be writing more about the recent actions of world central banks rushing out to buy gold.
Where the Market Stands; Where it’s Headed:
In October of 2007, we entered a secular bear market in stocks. Phase I of that bear market ended on March 9, 2009, when we moved into Phase II of the bear market—the phase that brings stock prices higher, as the bear market convinces the investing public that stocks are safe again.
We’ve been in a Phase II bear market for 32 months now. Phase II bear markets, often referred as the “rebound rally,” can last for three to four years. In this particular case, the actions of the government to adopt severe Keynesian economic policies and the actions of the Fed to aggressively expand the money supply continue to prolong the bear market rally.
What He Said:
“The proof the party is over in the U.S. housing market could not be clearer to me. The price action of the new-home-builder stocks is telling the true story—these stocks are falling in price daily (and the media is not picking it up). Those who will hurt most when the air is finally let out of the housing market balloon will be those buyers who bought in late 2005. In fact, the latecomers to the U.S. housing market may end up looking like the latecomers to the tech-stock rally that ended so abruptly in 1999.” Michael Lombardi in PROFIT CONFIDENTIAL, March 1, 2006. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.