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

U.S. Housing Market

The U.S. housing market is comprised of buyers and sellers of homes in the U.S. This information encompasses the supply and demand for homes as well as the inventory level of unsold homes. In different markets around the country, 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. Varying degrees of income levels and job growth play a role in determining how many transactions occur in any given housing market.

A Major Problem with This Quarter’s GDP Numbers

By for Profit Confidential

U.S. economyIn its revised estimates of the gross domestic product (GDP) for the second quarter of 2013, the Bureau of Economic Analysis (BEA) reported that the U.S. economy grew at an annual pace of 2.5%, up from its previous 1.7%. (Source: Bureau of Economic Analysis, August 29, 2013.)

GDP numbers being better than before will send a wave of optimism through the stock market—I can just hear stock advisors saying “Buy, buy, and buy some more!”

But you can’t take these GDP numbers too seriously. When you look at them in more detail, there’s a major problem: consumer spending in the U.S. economy is not improving!

In the second quarter of this year, real personal expenditure in the U.S. economy (an important indicator of consumer spending) increased by only 1.8%. In the first quarter of 2013, this number rose by 2.3%! If we are hoping for economic growth, declining consumer spending is not a good start.

So what changed in the second quarter to boost overall GDP in the U.S. economy? Higher exports from the U.S. economy made a big impact. Exports increased by 8.6% in the second quarter, while in the first quarter they declined by 1.3%.

Many will say rising exports are a good sign, because we are producing more and selling more. But what this really gives us is proof that American companies are seeing sales rise abroad, but not here in the U.S.—in fact, it’s more proof that consumer spending in the U.S. economy is weak.

It has been well documented in these pages that companies in key stock indices are complaining about consumer spending in the … Read More

Best Explanation on the Fake Housing Market Recovery I’ve Seen

By for Profit Confidential

Housing Market RecoveryThe average American Joe isn’t participating in the U.S. housing market. As a matter of fact, according to the Campbell/Inside Mortgage Finance HousingPulse Tracking Survey, investors purchased 69% of “damaged” properties in April 2013, while first-time home buyers accounted for only 16% of “damaged” purchases.

It is very well documented in these pages how home prices in the U.S. economy are being driven upward by institutional investors. Affirming my stance on the U.S. housing market, Suzanne Mistretta, an analyst at Fitch Rating Services, was quoted this week as saying, “The [housing price] growth is being propelled by institutional money… The question is how much the change in prices really reflects the market demand, rather than one-off market shifts that may not be around in a couple of years.” (Source: Popper, N., “Behind the Rise in House Prices, Wall Street Buyers,” New York Times Dealbook, June 3, 2013.)

Major financial institutions like The Blackstone Group L.P. (NYSE/BX) have become major buyers in the U.S. housing market. Blackstone has spent more than $4.0 billion for 24,000 homes in the U.S. housing market that it plans to rent out.

Rising prices on homes in various pockets of the U.S. housing market are a direct result of large institutional investors buying in.

Take Atlanta, for example. Blackstone bought 1,400 properties worth more than $100 million in Atlanta last year. (Source: Bloomberg, April 25, 2013.) And what happened to prices for homes in Atlanta? According to CoreLogic, a housing data compiler, home prices in Atlanta increased 12.4% in the 12-month period ended February 2013, compared to a 10.2% increase in the overall U.S. housing … Read More

As Investors Flee Gold ETFs, Central Banks Jump in as Bigger Gold Buyers

By for Profit Confidential

Central Banks Jump in as Bigger Gold BuyersWhile mainstream financial and a growing number of economic forecasters focus on investors fleeing the gold bullion market, I am following in the footsteps of central banks around the world…

Investors pulled out a record amount of money from gold bullion-backed exchange-traded funds (ETFs) this past February. A total of $4.1 billion was withdrawn from gold bullion ETFs last month, the largest single-month outflow since January of 2011. (Source: ETF Trends, March 6, 2013.)

Gold investors fled the market on speculation that gold bullion prices will plummet, as the metal’s future looks anything but bright—the theory being the global economy is improving and central banks will need to pull back on their easy monetary policies.

But, as investors sold ETFs in February, central banks around the world added to their gold bullion reserves.

South Korea added another 20 metric tons of gold bullion to its holdings in February—raising its gold reserves by 24% to 104.4 tons. Since June of 2011, South Korea has purchased gold bullion five times. (Source: Bloomberg, March 6, 2013.)

Similarly, central banks from Russia and Kazakhstan have been increasing their gold bullion holdings as the prices go down. According to the International Monetary Fund (IMF), the Russian central bank purchased 12.2 tons of gold bullion in January.

As the World Gold Council cites, central banks across the world ramped up their gold bullion buying; they bought 534.6 tons last year, 17% more than the previous year.

Dear reader, when you have the former biggest sellers of gold bullion, central banks, turning into buyers, it is nothing less than a bullish indicator.

What holds … Read More

Short Sales and Foreclosure Jump to 20% of Home Sales; Institutions Support Housing Market with Major Buying

By for Profit Confidential

The chart below is the S&P Case-Shiller 20-City Home Price Index.

$!ESSPCS20RSA S&P case shiller 20 city stock chart

Chart courtesy of www.StockCharts.com

From the S&P Case-Shiller 20-City Home Price Index, we can see that home prices are still down almost 30% from their peak in early 2007.

As the chart shows, a little change in home prices doesn’t really mean recovery in the housing market. On average, home prices in the U.S. economy will have to go up about 42% for the people presently living with negative equity in their homes to break even. This much of a recovery could be far away for the U.S. housing market…

According to RealtyTrac, foreclosures in the U.S. housing market dropped seven percent to 150,864 in January from the previous month. One in every 869 homes in the U.S. housing market was on the verge of foreclosure in January. (Source: RealtyTrac, February 12, 2013.)

And, according to real estate research firm CoreLogic, in October of 2012, foreclosures accounted for 11.5% of total home sales. In the same period of 2011, they accounted for 17.3%. But in the same period when foreclosures declined, short sales climbed from 10.4% to 8.4% of all sales. (Source: Wall Street Journal, March 5, 2013.)

Short sales, where a homeowner sells his/her home for less than the mortgage and the bank takes the loss, have taken up the slack in foreclosures! Add to this the fact that first-time home buyers are not present in the U.S. housing market rebound while institutional investors are buying single-family homes in bulk and renting them, and all of a sudden the U.S. housing market rebound is questionable.

There is … Read More

The Fed’s Running the Show and Risk Keeps Going Up

By for Profit Confidential

250213_PC_clarkThere just isn’t enough real economic growth out there for a rising stock market—at least not much more than has already been achieved. News from the Federal Reserve of the central bank considering how to end quantitative easing sent the stock market much lower, revealing just how artificial the whole system is.

I actually think the current stock market is fairly valued, but it shouldn’t be going up in value with modest revenues and earnings growth. The Federal Reserve is the catalyst for today’s trading action, but first-quarter earnings season will be a catalyst for investor sentiment. Some companies and industries are doing better than others. The choppy recovery in the U.S. economy is now being reflected in earnings results, as corporations can no longer cut any more costs. Revenue growth is now the key.

On the release of the minutes from the Federal Reserve meeting, stock markets around the world sold off, literally. All the positive action so far this year has been incredibly tenuous, and the low trading volume said it all. I think we’re now in a mini-correction, induced by recent news from the Federal Reserve, although it won’t be a market-breaking pullback.

Right now, the prospects for gold, silver, and oil are terrible, and the near-term action in resource stocks is headed downward. We also have a lot of solid, dividend paying large-caps that are trading right near their highs and are due for a break.

It’s odd that the stock market reacted so negatively to the Federal Reserve’s latest news. Investors have been complaining about all the easy money and artificially low interest rates. … Read More

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The Great Crash of 2014

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

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