Escaping Recession for U.S. Becoming Next to Impossible

Another 620 jobs in the mortgage industry gone, gone, gone…

This morning, Cerberus Capital Management and H&R Block announced that Cerberus has walked away from a deal to buy H&R’s Option One Mortgage Corporation. Hence, H&R will virtually close down its mortgage subsidiary, laying off about 620 people and closing three offices.

Cerberus, not quite a vulture fund but more like a leveraged buy- out fund, signed on to buy Option One Mortgage back in April. Since then, the subprime market has caused severe damage to the U.S. mortgage industry, so Cerberus is walking away from the deal and H&R will take a seventy-five-million-dollar charge to shut down its once flourishing mortgage subsidiary.

There are plenty of job losses happening in the construction, real estate and mortgage industries in the U.S. I give you the H&R Block example of just another day, another closure, more lost jobs.

At the peak of the real estate boom in 2005, I was predicting the bust of the boom would eventually be devastating.

Even the most novice investor can now read the chart of the Dow Jones U.S. Home Construction Index and see that it is trading at its lowest level in five years. If, like me, you believe that stocks are an indication of what lies ahead, this important index is telling us housing prices are headed to 2002 levels! What would that do to the economy? Such an event would devastate the U.S.

The stock market cannot escape the plunge in the U.S. housing industry. Former Fed Chairman Greenspan told us that the slump in housing would not affect the economy — now he is singing a different tune. All those analysts and economists who told us the subprime mess would not spill into the remainder of the financial market were liars, too (okay, maybe liars is too harsh a word; we’ll just call them prophets of Wall Street).

I remind my dear readers that, in 1929, the stock market crashed, rallied, and then crashed again in the early 1930s, causing the Great Depression. But it was real estate prices that crashed first, in 1927. I’m not calling for a depression, because the Fed has many manipulation tools available to it today. What I am predicting is a severe and devastating recession for the U.S. economy.

NEWSFLASH — The manufacturing industry grew this past November at the slowest rate in 10 months according to the popular Institute for Supply Management factory index. My take: The lower U.S. dollar is actually stimulating U.S. manufacturing, and if it were not for the lower value of the greenback, U.S. manufacturing would already be in a recession.