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Consumers Twist In The Wind As Liars Proclaim New Bull Markets
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“Too clever is dumb.” –German Proverb
We’ve been warning the last shoe to fall and by far the most important one is Mr. and Mrs. Consumer in America. They’re perpetual trillion-dollar acquisitions of stuff is nearly unimaginable representing 70% of the United States economy. Official statistics from innumerable and allegedly authentic sources tell us we are not in recession, consumers are still buying and while things are slow we will be fine. This nonsense is regurgitated from the mouths of trained liars with an agenda not comparable to mine or yours. Considering the monstrous size of this buying group it’s impossible to hide its many failures any longer as housing, autos, retail, banks, credit, and associated industries, fail right and left.
Front and center in this massive impending disaster are consumer’s credit cards. For months and even years in some cases, individuals and families have been out on the edge using plastic for basic needs. In former years these cards were for business travel convenience and occasional shopping for larger sporadic purchases. Today, millions of Americans are stacking-up card debt being forced to use them exclusively for daily needs. Without their cards and the too-easy terms available through multiple credit accounts these card users might in fact be destitute.
The Green Guy’s housing credit was initiated to “save us from recession” but spawned something infinitely worse; not a nightmare on Elm Street but on Main Street. The Nasdaq tanked in 2000 but the Dow and S&P temporarily recovered as Sir Alan proudly told us he and his team would make us all well. Little did he dream his horrendous mess about to unfold could threaten the entire global system.
Handing out Keys To Housing Vaults Gave Us Armageddon.
An absolutely uncanny chain of events was unleashed when Greenspan cut interest rates skidding them to near invisibility. Immediately, those helpful, industrious housing guys and gals responded by tossing home loan billions from helicopters. Maybe this is where Chopper Ben discovered this neat idea. Lack of underwriting controls wasn’t just being lackadaisical, it was ludicrous. Basically, if you had a pulse and maybe a job you not only got a new home but thousands more in additional credit. The astounding ATM extractions from home equity loans, and 2nd, 3rd and 4th mortgages that followed defy imagination.
As the buying frenzy escalated, silly prices emerged driven on a scale doubling newly built house prices up over 100% from 2003 to 2006. Then it all peaked. We first reported impending house loan doom when the lumber futures sank in June, 2005. With derivative originations surfacing near this time, we absolutely knew it must end badly. Some of these crazy loans enabled new home buyers with green, unproven payment track records to buy houses for $100,000 and then take out $80,000 more in equity the following year. This as severely inflated prices took the $100,000 house to $200,000 at retail in that miniscule time span. In hotter sales markets, these numbers were much higher.
Consumer market analysts saw this unprecedented boom not understanding at first where all the cash and credit was coming from. These newly minted home-owners went on retail buying rampages purchasing big screen TV’s, multiple new cars, furniture, vacations, home additions and swimming pools. When these sprees expand they feed on themselves into an ever growing frenzied credit monster tossing good sense out the window. Now we learn banks are actually paying homeowners to give-up approved lines of credit to escape potential future liability.
“Home equity withdrawals peaked at $700 billion in 2005 and are now down to $24 billion, or even less.” -Nouriel Roubini
Home utilities, Operating Expenses, Real Estate Taxes Not Considered.
Mundane every day costs of home ownership are often routinely disregarded by new owners. It’s our contention sewer, water, natural gas, electricity, telephone, cable tv, internet, and maintenance-repairs, are just something taken for granted and paid from your pocket on an as-billed basis. Who takes the time to add up this list and find a total? When you do, you’ll find the answer is often higher than one large mortgage payment. Now, in reality, you’ve suddenly got two very large mortgage payments.
Since home buyers pushed the limits on their new first mortgages instead of following industry lending rules, the second round of home-operating bills as we’ve just discussed, tighten-up uncommitted cash flow quite quickly. If for example a homeowner has a $1500 monthly house payment and rudely discovers all that other stuff costs an additional $1500 a month, many have got some serious problems.
Americans aren’t savers anyway as they’re annual rate as printed by the banks is something like 1% or less. By contrast, Japanese consumers religiously save 5-15% of income each year. This is why they could slide by in their recession over the past 10-15 years since their stock market bubble popped in 1989. Sadly, too many failed Japanese zombie banks and corporations were permitted to live, which cast a malaise; a lengthy pall over Japan’s GDP.
Sitting In The Poor House
Now we have millions of Americans in the poor house (literally) overloaded with bills, not enough cash flow and just about zero money for discretionary purposes, and heaven forbid any emergencies. Lots of twenty-somethings with college degrees, young kids, 3 or 4 new leased cars and living McMansion lifestyles are only one paycheck away from obscurity. We are talking about dual income families earning $200,000 to $250,000 who are basically broke-busted and over-burdened.
As the perfect storm of a slowing economy, job layoffs and job reductions arrived, these former hot stuff consumers lay in bill-paying wreckage. These folks along with many others are significantly underestimating future fallout from inflation, hyperinflation, recession and maybe even a depression.
Just like those New York Wall Street liars smoothly and perpetually telling us all is well, the severe consequences of this situation are rudely ignored. This week we reported in Trader Tracks, thatmore homebuyers are not making any payments at all and banks-lenders are so overwhelmed with problems they have no time to issue warning notices. Borrowers aren’t paying anything and bankers aren’t complaining. We’ve never heard of this-ever!
The larger losses are just ahead. Now we see hedge funds selling out and cashing in their chips after major trading failures. The credit and collection-finance business is so bad some foreign sovereign (government owned investment) banks are being paid to buy bad US paper. When big banks and corporations are selling off their good assets in bad markets things are not going well at all. This is truly desperation.
There is no more wealth effect remaining from this three-year rabid housing rally. The money is gone, the bills go unpaid and consumer cash flow is diminishing, or stopping entirely. Private school and summer camp are cancelled. Some kids ready for college are getting poorly paid hourly jobs instead of working toward a new degree. They can’t get a student loan and poppa is broke. Cars are being repossessed, utilities are set to save money and extravagant meals out are no more.
Wonder why the popular eating chains are entering bankruptcy court? Wonder why entire strip retail centers are vacant? Wonder why telemarketing sales people are on your phone non-stop? Wonder why we see new ads on television from service companies and suppliers who formerly did not advertise at all? The answers are obvious. Millions are flat out broke and others are going broker.
I was buying casual clothes in J.C. Penny’s two weeks ago. I meet a hard working, very quick and smart clerk; a pleasant young lady that informed me she had bachelors and master’s degrees from the University of Michigan. This is a very high class school whose graduates are super-prime and sought after by employers. She was working as a clerk as that’s all she could get. Worse yet, she told me her husband was a PhD U. of Michigan grad and unemployed!! I find this unbelievable. Formerly, U. of Michigan grads with no job experience and trained in a good field often got starting job offers of $75,000 to $150,000 with no experience! Apparently, not any more.
Look at the Big Three auto shares. Ford is under $5 and GM is struggling to stay above $10 where it was back in the 1950’s! Chrysler does not report as they are private. Good thing too as it would not be pretty. Honda passed them this morning to take over 4th position in world-wide sales. Now these US auto manufacturers are going to Washington, D.C. with tin cup in hand demanding they get $50 Billion in new loan guarantees to stay alive. The bureaurats offered them $25 Billion to start and will probably wind-up giving them more like $100 Billion. After that, watch closely as these auto magnates dump their pension and health care obligations on the US Treasury.
We kindly suggest those not paying attention to these things are Pollyannish, liars, or delusional. Watch carefully the Ides of September-that is September 15th. We have forecast several times the cycle period of 9-15-08 through 9-23-08 could have some very nasty surprises. This month is prime-time for hurricanes but its also prime time for stock market crashes and other related negative events. We see some time-cycle convergences during these dates that are prone to upset trading tea carts.
We predicted the new base-beginning of our favorite markets to the very day on August 18th and got some nice feedback from fellow analysts and traders. Soon we’ll see if I’m correct on these new dates.
Watch for new rallies in most all recovering commodities markets. Now it’s time to buy. Our late summer precious metals haircut is over. The only action to prevent selling is our stunningly time-worthy Plunge Protection Team who had multiple recent failures propping shares. Will they win during the fall push-‘em--up event? Today of September 4th is nasty with our Dow down over 300 points.
With election silliness underway the PPT will prop shares. Considering September market dangers they will prop their little hearts out and not permit the Dow and S&P 500 to get out of control; but it will sell somewhat anyway. In our newsletter, Trader Tracks, we provide weekly guidance and extra e-mail alerts to report our best new trades and offer suggestions for trade management. Visit our website at webeatthestreet.com for more information on our spectacular futures and commodities trading record.
Whatever you do, make a concerted effort to stay with the trend and hang onto your core holdings of preferred shares, cash, and coins. Physical gold should never be sold or, traded but rather accumulated steadily on a monthly savings plan and squirreled away.
Should you be having difficulty buying physical metals on new orders, we suggest placing an order and being patient. Big traders are always ready to buy on the dips and normally never sell their gold and silver. You would be amazed how quickly your physical gold and silver will accumulate using this strategy. -Traderrog
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Roger Wiegand is Editor of Trader Tracks Newsletter for gold, silver and energy traders. Roger provides recommendations for short and longer term traditional stock shares, futures and commodities trading with specifics for individual trades. See webeatthestreet.com for more information
Contact Claudio Bassi, at Trader Tracks New York City publishing offices for a free 30-day trial subscription 718-457-1426 Monday through Friday, 9:00am to 5pm or, e-mail Claudio at cbassi@miningstocks.com
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