Should We Believe this Bank’s Prediction?

by Michael Lombardi, CFP, MBA

I love when people who were wrong about the recession (i.e. didn’t even call it or lost a lot of money because of it) come out and tell us what’s headed our way in the months ahead. Case in point is Deutsche Bank AG.

Remember Deutsche Bank? They are the big European bank that went from making $6.0 billion (that’s euros, I believe) in each of 2006 and 2007 to losing $4.0 billion in 2008. Well, Deutsche Bank is now telling us where the economy is headed before things get better.

According to Deutsche Bank, U.S. housing prices will fall another 14% before the bottom is reached. In a report released yesterday, the bank says that, from the top of the U.S. housing boom to the bottom, prices will have fallen 42% by the time it is all over. Should we believe the report and how will it affect our stocks?

My opinion is that the stock market has already discounted the worst for the real estate market. Just look at the stocks of the largest U.S. homebuilders. Most look like they have never recovered. So, yes, the bottom for housing may be here or may be only 10%-15% more away, BUT — and this is a big BUT…

If interest rates start to rise, then it is all bets off for the housing sector. The higher interest moves in the U.S. (and we already know that long-term rates are at their highest level in six months), the more damage there will be done to the U.S. property market. In a nutshell, housing isn’t out of the woods quite yet. And no, I wouldn’t be a buyer of homebuilder stocks yet either.

Michael’s Personal Notes:

I’ve never seen anything like it in my life: 65 stock selections, 65 winners…all in 2009. Tomorrow, for the first time, you will be
getting an e-mail from us on the progress of Bob Appel’s “Profit
Taker” newsletter. In a nutshell, 100% of the stocks Bob has picked so far this year — and there are 65 of them — are all up. This is a truly amazing feat. Please watch your e-mail box tomorrow, as we expect to get flooded with requests for “Profit Taker” very quickly. Quite frankly, everyone should be getting Bob’s “Profit Taker” newsletter with those kinds of gains.

Where the Market Stands:

Up, down, sideways…what do you call a stock index that can’t decide which way it should go for 2009? Simply call it the Dow Jones Industrial Average. The Dow Jones moved up late last week to a new 2009 high and this week, with no real apparent “bad” news for the market, the Dow Jones is down again for 2009. I guess that’s how bear market rallies work. Get investors excited about new good times ahead, and then take that lovin’ feeling away. I doubt the bear market rally will end without a bang. The Dow Jones is down three percent for the year at present.

What He Said:

“For the economy, the message from retail stocks is quite clear: consumer spending, which accounts for roughly 70% of U.S. GDP, is in jeopardy. After having spent like “drunkards” during the real estate boom years, consumer spending is taking the same trend as housing prices, slowing down faster than most analysts and economists had predicted. As news of the recession continues to make headlines in the popular media, the psychological spending mood of consumers will continue to deteriorate, lowering earnings at most high-end retailers and bringing their stock prices down even further.” Michael Lombardi in PROFIT CONFIDENTIAL, January 28, 2008. According to the Dow Jones Retail Index, retail stocks fell
32% from January 2008 through November 2008.