December 26, 2012
- Bah! Humbug! rally in house prices masks a foreboding forecast for 2013… a Fed indicator we can find solace in…
- The alternative consensus: Faber, Rogers and Amoss agree… 100% chance of recession in the new year… what you should do to prepare…
- Paulson sells GLD (again!)… Holmes speculates on the real cause of last week’s drop in AU…. gives forecast of his own…
- Behold the CombiBar!… reader gets real about Mayan apocalypse… days numbered for 2012 Reserve discount… a 5 Min. Pro recco in housing… and more!
A recovery in housing has no doubt ranked high on the gift list of every economist, CNBC pundit, political strategist and mortgage broker alike throughout 2012.
That “consensus view” got a good needle in the arm this morning when Santa brought a late Christmas present — a 4.3% year-over-year increase in the Case-Shiller home price index.
The month-to-month change was not a big deal — down 0.1% from September to October — but the annual increase is the biggest since May 2010, when the market was coming off the sugar high of the homebuyer tax credit.
“Looking over this report,” David Blitzer, chairman of the index committee at S&P Dow Jones Indices commented, summarizing the consensus, “it is clear that the housing recovery is gathering strength.”
“A small sliver of the market,” explains our short strategist Dan Amoss, delivering the humbuggery that longtime 5 readers have come to know and love, “single-family home rentals have put a floor under the low end of the market.
“The mid to high end of the market has not bottomed, because it depends on growth in the population of young families with secure, high-paying jobs.”
There’s the rub.
Unfortunately, as Bloomberg reported last Friday, “average incomes for individuals ages 25-34 have fallen 8%, double the adult population’s total drop, since the recession began in December 2007. Their unemployment rate remains stuck one-half to 1 percentage point above the national figure.”
“Recent college graduates,” Dan says, “make up a huge portion of the homebuyers’ market. Many of them owe a share of the rapidly souring mountain of student loans. So even if they’d like to, they can’t afford a mortgage for a starter home.”
Result: For all of the “activity” in the housing market, 27% of last year’s house sales were made to investors, and 20% of all sales were cash sales, according to mortgage expert Josh Rosner.
Meanwhile, the blockage in the foreclosure pipeline is starting to reopen: RealtyTrac says banks repossessed 59,134 houses last month — the first annual gain in two years.
Dan says, “Investors and all-cash buyers cannot easily absorb this housing inventory. The mortgage market, which politicians and central bankers have ruined with intervention after intervention, is in no condition to absorb this supply.”
“The housing bubble spoiled the case for owning homebuilders and home improvement companies,” says Dan, turning to investment implications. “They face years and years of low returns, especially if they deployed lots of capital during the bubble.
“Yet here we are in late 2012, in the midst of a tepid (not booming) housing recovery, and day traders are hoping to make a quick buck flipping these stocks to greater fools.
“Those investors will bail out in 2013,” Dan offers in our first forecast for the new year, “when expectations for housing bubble 2.0 fade and earnings disappoint.”
[Ed note. Fortunately, Dan has also pinpointed a way to get ahead of the disappointment and turn it into a potential 50% gain. The strategy figures strongly in what we call the "6-3-1 Safety Net" to protect your assets next year. ]
Even if Congress and the White House manage to avert the “fiscal cliff” this week, there’s another crisis waiting in the wings… one they won’t be able to avoid.
Check out an indicator maintained by the Fed called the “U.S. Recession Probabilities Index.”
It’s a boring-sounding mix of everything from nonfarm payroll jobs, industrial production numbers, real personal income numbers and manufacturing and trade numbers.
But what it’s done is successfully predict every recession since 1967. So what’s it saying right now?
Every time this index hit 20%… a recession has followed. In 46 years, this has happened six times.
Our friend and Vancouver regular Marc Faber showed similar concern last week. He told a CNBC panel that we’re looking at “100% chance” of a global recession over the year ahead. Quantum Fund co-founder Jim Rogers, also a Vancouver alum, puts it this way,
“America has had recessions and economic slowdowns every four-six years since the beginning of the republic. You can add. By 2013, we are going to have another, and when it comes this time, it is going to be worse than last time because debt is so much higher…”
“Within two days of the November election,” a new report we just released observes, “52 companies reported weaker earnings… railroads and trucking is down… consumer shopping is down… and many big companies say they’re about to let go of thousands of workers.
“The U.S. Bureau of Economic Analysis says we’re even stuck in what they call a ‘stall-speed economy.’ Bloomberg recently insisted we’re already in a full recession — we just don’t know it yet.”
Housing may be giving the “consensus” cause for optimism this close to the new year, but we recommend you don’t take your eye too far off the ball. Learn what’s at stake and how to protect yourself, here.
The Dow slid about 50 points during Monday’s short trading session… and it’s slid another 50 or so points this morning, to below 13,100. The Nasdaq is taking a bigger hit, to back below 3,000.
Precious metals have inched up in thin trading this week. At last check, the spot price is up to $1,661. Silver is struggling to reach the $30 threshold.
“Intuition was telling me something was going on these past few days in the gold market,” wrote U.S. Global Investors chief and Vancouver favorite Frank Holmes shortly before the holiday.
Subsequent events bore out Mr. Holmes’ sixth sense, “when Zero Hedge posted that Morgan Stanley Wealth Management recommended that its clients dump two of John Paulson’s funds. As MS clients redeemed their shares, the hedge fund giant became a forced seller of gold and gold stocks.
“What complicates the gold market,” Frank goes on, “is the fact that Paulson is such a big fan of the yellow metal that he offers a ‘gold share class’ to investors, meaning shares are denominated in physical gold. The drawback is when an investor redeems shares, his firm has to convert from gold back to dollars, which forces him to sell his hedged position in the SPDR Gold Shares ETF (GLD).
“The unfortunate consequence of his actions is a short-term decline in the gold price as the market adjusts.”
But the long-term picture remains unchanged: “With governments lacking courage for fiscal discipline, I expect that interest rates will remain in negative territory for a long time,” Mr. Holmes concludes. “Central bankers will continue to keep the printing presses warm, as policies aren’t expected to change. I believe this will keep the fear trade buying gold throughout 2013.”
Buttressing Mr. Holmes’ thesis, Brazil’s central bank has doubled its gold holdings since August – to a total of 67.2 metric tons.
“Central banks, particularly in the emerging economies, are looking to increase the proportion of gold in their reserve assets,” analyst Alexandra Knight from National Australia Bank tells Bloomberg. “That will drive prices of gold because they can be quite significant purchases.”
Indeed, gold makes up a much smaller share of foreign exchange reserves in emerging economies. Before its most recent purchase, Brazil held only 0.5% of its reserves in gold, compared with the official U.S. figure of 77%. And after this purchase, Brazil ranks a mere 41st among the world’s nations in gold holdings.
Sounds as if Brazil is getting serious about building up its armaments for the “international currency war” the country’s finance minister decried two years ago.
Behold, the newest innovation in gold bullion — the “CombiBar.”
“Private investors in Switzerland, Austria and Germany are lining up to buy gold bars the size of a credit card that can easily be broken into 1 gram pieces and used as payment in an emergency,” according to Reuters.
It’s the handiwork of Valcambi, a Swiss refinery that belongs to the mining giant Newmont. “The rich are buying standard bars or have deposits of physical gold,” says Valcambi CEO Michael Mesaric. “People that have less money are buying up to 100 grams. But for many people, a pure investment product is no longer enough. They want to be able to do something with the precious metal.”
At today’s spot price of $1,660 an ounce, a single gram of a CombiBar is worth about $53.40 — considerably less than a 1/10-ounce U.S. Gold Eagle. Hmmm….
“Has anyone asked,” writes a reader of the fiscal cliff, “why these ‘time bombs’ are set into tax legislation?
“To avoid this, simply pass tax cuts that would never expire …… and the only course for the Congress and Senate would be to repeal if and when that is needed!”
The 5: For that matter, they could pass tax increases that never expire. Our theory is that they have a chronic need for attention. As long as they keep changing the rules, we the people will have to follow their moves and machinations.
OK, so it’s a vestigial theory that needs further exploration. But we throw it out there for your consideration…
“TRY TO GET YOUR FACTS RIGHT!!!” writes a reader whose capitalization and exclamation points we’ve preserved for authenticity, although we did correct his spelling.
“NOWHERE do the Mayans even suggest that the world will end in 2012! It is not in the Bible, Koran, NOWHERE! The word that ‘man’ so appropriately misuses to surmise the supposed ‘end of times’ is APOCALYPSE, which REALLY MEANS ‘the Lifting of the Veil!’ It is a NEW BEGINNING as we enter the Photon Belt and the Galactic Alignment.
“Sure, it will mean there will be changes, of that there is NO DOUBT, BUT the world will be a much better place than this materialistic nightmare that we have created to date! You folks need to actually do some REAL DUE DILIGENCE! It seems that you folks are also signed up to the ‘sell fear’ aspect of materialism! Oh, well! It is YOUR LOSS!~! NAMASTE!”
The 5: If you claim enlightenment, why are you so angry?
The 5 Min. Forecast
P.S. The clock is ticking on our “loyalty rewards” program. You may be entitled to $1,044 in benefits for the coming year… and $4,940 every year after, depending on which of our services you subscribe to.
For a comprehensive list of qualifying services, look here. Be advised your rewards expire at midnight this Friday night, Dec. 28.
P.P.S. As 5 readers know, we’re not completely down on the housing market. Our managing editor Chris Mayer has shown how you can seize the moment of ultra-low mortgage rates to secure a handsome stream of rental income.
Platinum-level Reserve Members can read on to see another way to play the lumpy housing recovery in today’s 5 Min. Forecast PRO – our new “sixth minute” that delivers actionable investment advice based on the insights you see here in The 5.
The 5 Min. Forecast PRO is still in the beta-testing stage… but we’re less than one week away from rolling it out for everyone. Stay tuned!]