Here are just a few statistics in the news lately from respected market mavens like the S&P/Case-Shiller Indices and the National Association of Realtors:

• The “average” price of homes in the U.S. is down almost 35% from the record highs of 2006.

• “Median” housing prices are down 19% in 90% of the major markets in the United States.

• Building permits were up 4% in April from last year, and homebuilder confidence increased from 16 to 18.

So what do these numbers mean to you?

Probably nothing.

“It’s like a weatherman who combines conditions in Nome, Alaska and Clearwater, Florida and issues an “average” national forecast of 45 degrees,” according to Andrew Waite, a former institutional investor who is now the publisher of a magazine focusing on real estate investing. “Real estate markets are by their very nature ‘hyperlocal. Averages simply don’t apply.”

Waite is the publisher of thePersonal Real Estate Investor, a glossy magazine that focuses on investors who buy houses or condos to manage for income or to fix up and sell for a profit, and he wastes no time in dismissing most of the “indicators” in use as useless and irrelevant.

As a onetime Wall Street venture-capitalist who subsequently joined Silicon Valley’s Sand Hill Road private equity crowd, Waite also understands how the Wall Street investment game is played – and, in the case of the U.S. housing market, the missteps many overly-anxious analysts make as they attempt to create a “one-size-fits-all” picture of the nation’s housing market.

And he would like you to know that all those gloom-and-doomers are overshadowing a real estate rebound that is already underway.

The Fractionalized Housing Market

The housing market is too fractionalized to put a finger on an “average” price, Waite says.  Real estate is segmented by individual neighborhoods, and is further subdivided by price points and such price-influencing factors as condition, cash flows – and even cap rates on rental properties.

To find the facts about housing prices for his investors, Waite compiles and verifies data directly from records kept by local Multiple Listing Services.  From sales records, Waite determines the inventory supply in months for major markets. That gives him the “hyperlocal” data that reveals an accurate picture of individual markets.

“The formula’s pretty simple,” he says. “As housing inventories shrink in real estate markets around the country, demand and prices go up.”

After examining the statistics for March, Waite thinks he sees a clear bottoming pattern, at least in some markets. If he’s right, the Western United States is already making a comeback and the ripples of resurgence will soon make their way to the Midwest and then to the East Coast markets.

What’s more, the improvement from year to year indicates the bottoming sequence will soon have prices on the rise.

Housing Markets in Western U.S. Have Already Bottomed

Remarkably, Waite’s research reveals the downtrodden Las Vegas housing market has already bottomed and is currently “balanced” between buyers and sellers.  Housing markets in Seattle, Los Angeles, Phoenix and Denver are on the move too:

• Phoenix’s MLS housing inventory is 7.33 months, down from 19.1 months last year.
• Denver’s current inventory is 5.59 months, down 35% from a year ago.
• San Diego’s inventory stands at a paltry 4.19 months, down 58% from a year ago.
• And Las Vegas’ inventory stands at just 6.25 months, down a whopping 64% from an inventory of 17.5 months in 2008.

In fact, Waite sees the trend on the West Coast as a leading indicator that the worst is behind us. In short, if you’re in one of those depressed markets where prices are still dropping, relief may well be on the way.

Here’s the “market-bottoming” sequence as he sees it:

The chart depicts the market for houses in the Western United States.  It follows the natural sequence of a housing market recovery through its progressive phases:  As the supply of homes drop, demand picks up. And as that demand picks up, prices first stabilize and then begin to rise.

Based on this research the housing cycle on the West Coast has already bottomed and prices will start to swing upward in the fall.  Eventually the trend will move from West to East and prices will move up broadly.

But the recovery will be painfully slow getting to certain markets where cities are still being hit with swelling inventories, which is likely to continue to put downward pressure on prices.

Housing supplies in Baltimore, for example, have increased 11% from March 2008, to 15.9 months this year.  Similarly, listings grew from eight months to about nine and a half  months in Houston, and from eight and a half months to 10 months in Charlotte.

But some of the hardest hit markets are clearly on the upswing.  Miami has slashed inventories from a staggering 52 months to 31 months, a decrease of 40%.  Rochester, New York and Boston have each dropped housing supplies by about 13% in the last 12 months.

Some realtors in Boston are even reporting that sellers are receiving multiple competing offers to buy homes for more than their asking price and buyers are entering counteroffers.

Fewer New Homes Stoke Demand

And it’s not just pre-existing home sales driving a rebound in the sector.  In October 2007, new home permit applications stood at roughly 800,000 nationwide.  A year later, in October of 2008, that number had dropped to about 480,000.

Since it takes about 12 months for buildout to progress from permit to finish — and with many builders halting construction altogether — Waite estimates only about 450,000 of those permits will actually translate into new homes that will hit the market in 2009.  And with new home inventories drying up, demand will start climbing as well.

In fact, declining new home inventories are already beginning to stabilize prices in hard-hit southern California, an area where prices were hammered by waves of foreclosures.

KB Home (NYSE: KBH) Chief Executive Officer Jeffrey Mezger said on May 4 home prices in Southern California have begun to stabilize, making his company’s new houses competitive with existing homes, including foreclosures.

“If you go to Southern Cal, as an example, we’re seeing a floor on pricing,” Mezger said recently in a conference call with analysts organized by J.P. Morgan Securities Inc., Bloomberg News reported. “We don’t see prices going down right now, which is a good thing, because then you can set a baseline.”

In March, Los Angeles-based KB Home, reported a narrower first-quarter loss as orders increased for the first time in three years.

And there are other positive signals.

• The median price paid for a home in six Southern California counties was $250,000 in March, the same amount as in January and February, according to San Diego-based research company MDA DataQuick.

• The National Association of Realtors says a total of 3.7 million homes were listed for sale nationwide at the end of March, down 10% from a year earlier.

• The supply of homes for sale in 29 major metropolitan areas at the end of April was down 3.6% from a month earlier, according to figures compiled by ZipRealty Inc., a real-estate brokerage firm based in Emeryville, Calif.

That last figure defies normal trends — listings typically increase in April as for-sale signs bloom heralding the spring home-shopping season.  Since 1982, the average increase in April from the prior month has been 4.8%, according to Zelman & Associates, a research firm.

Tom Lawler, a housing economist based in Leesburg, Va., says the decline in listings “suggests that the bottom in home prices is much closer than many pundits believe.”

Still Looming: Foreclosures, Credit Crisis, And Unemployment

But Lawler says the future remains unclear because no one really knows how many homes in the foreclosure process will eventually land on the open market.  Estimates are that some of the nation’s largest banks currently are listing only about 60% of foreclosed homes.

Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), are the biggest owners of foreclosed homes, but they have only about 35% to 50% of those homes listed for sale at any given time, according to industry estimates.

And some foreclosed homes aren’t listed because they’re on the rental market, are undergoing repairs or are subject to legal action or other delays.

Barclays Capital PLC (NYSE: BCS) estimates that banks and investors owned 765,500 foreclosed homes as of April 1, up from 629,100 a year earlier. Barclays forecasts that this inventory will peak at around 1.3 million homes in mid- to late-2010, The Wall Street Journal reported.

The credit markets pose another obstacle to recovery.

There’s no doubt that banks have made it more difficult to borrow money.  And mortgages are far more expensive than they appear, especially for people borrowing large amounts or trying to refinance.

As previously reported in Money Morning, buyers can only get those rock bottom 4.75% interest rates you’ve been hearing about if they put 20% down, borrow $417,000 or less, and boast a high credit score (730 to 750).

And the days of “stated income” loans where you don’t have to document your earnings, and option adjustable-rate mortgages, where you could choose to pay less than the interest due, are long gone.

But while that’s true, it’s also true that mortgage lending is still one of the banks most important sources of revenue.

“Tight lending standards and the credit lockup is absolutely the limiting factor on how soon prices will recover nationwide,” Waite says. “But eventually, banks will loosen their purse strings if for no other reason than it’s their most efficient way to earn profits.”

But the cold reality is that skyrocketing unemployment remains a major threat to the recovery of the U.S. housing market.  The unemployment rate soared to 8.9% in April, leaving more than 5 million workers without jobs. Economists predict the national jobless rate will probably hit 10% by year-end even if an economic recovery kicks off before then.

Consumers who are unemployed cannot buy homes, much less pay for the homes they’re already living in. And even consumers who are afraid that they might be joining the jobless ranks are loath to take on the added risk – making them unlikely candidates to buy a new home either.

Bottom Line: Prices Don’t Matter if You’re Not Selling

But while the current news is full of talking heads espousing the latest “average” numbers about the downward spiral in housing prices, the basic truth is the vast majority of homeowners won’t be selling this year or next.

The typical house is owned for five to seven years, and only about 5% of U.S. housing stock turns over in a single year, meaning only 1 in 20 homeowners plan to sell this year.

And, as Waite points out, houses aren’t a tradeable commodity so there’s no reason why you should consider marking your home “to market” as the Wall Street bankers are being forced to do with  those derivatives they’ve been trying to dump.

In fact, if you’re not in a hurry to sell, chances are good your home will recover at least most of its pricing power in the next few years.

“Unless you have to sell now, you’re pretty much insulated.  If you sell in five years, chances are what’s happening now won’t have any effect on your selling price at all,” Waite said.

Source: “Hyper-local” Stats Show Housing Market Has Bottomed

“Home prices fell more than forecast,” reports Bloomberg. They’re still going down at a 19% rate. Unemployment is still rising too.

The state with the biggest economy in the nation is going broke. So is the nation’s biggest manufacturer. Profits are falling. And the government is racing to put in place a form of state-sponsored socio-capitalism much like Mussolini’s Italy… or Peron’s Argentina.

These do not sound to us like ideal conditions for a bull market.

Did we say thinking? There’s not much thinking going on. People don’t often think… not if they can avoid it. And it’s probably better that they don’t. Who knows what opinions they might come to if they put their minds to it?

Instead of thinking, they react. And after a big drop in stock prices, they bounce. We’re now in an extended bounce which could last until mid-summer… and could take the Dow back to 10,000.

That is to say, there is nothing unusual about this kind of stock market action. Au contraire… it’s classic.

Investors are also reacting in the bond market. They’re buying Treasury bonds in reaction to bankruptcies, defaults and falling asset prices. Investors feel they can put their money into Treasuries and not worry.

But maybe they should spare a thought or two about what is really going on. Lending money to the US government is no sure thing. Far from it. In fact, under the present circumstances, lending money to the feds is asking for trouble. Recently, you could put your money in T-bills and get zero yield. “An extraordinary thing… ” said Warren Buffett, so extraordinary that he was “not sure you’ll see that again in your lifetime.”

The US Treasury market is in a bubble. Like all bubbles, it will pop.

On the numbers, the US government is the worst credit risk in the world. You determine a man’s creditworthiness by looking at his balance sheet. Add up his assets and subtract his liabilities. Do that to the federal government and you get a very big number with a minus sign in front of it. Even if they were to sell off the Capitol building and all the federal lands west of the Mississippi, the feds would still have a hole in their finances larger than any other in the entire world.

While the balance sheet looks awful, the cash-flow is worse. In the current year, the feds will take in about $1.9 trillion in taxes and spend $3.6 trillion. In other words, the feds aren’t just living beyond their means… they’re not even on the same planet. Who in his right mind would lend to a spendthrift whose outgo exceeded his income by nearly 100%?

The only way any loan can reasonably be repaid is from income. Income must exceed expenses or there will never be money for debt repayment. Lending to a corporation or an individual, the lender expects the borrower to earn his way out of debt. Otherwise, it’s a fool’s game. The debtor is soon kiting checks and going deeper in the hole. He borrows from one lender in order to pay off the first lender… In effect, he operates a pyramid scheme – depending on fresh suckers to keep giving him new money – until the whole thing comes crashing down.

The federal government doesn’t even pretend that it is going to earn its way out of debt. It presumes that there’s an endless supply of money it can borrow… and new suckers born twice a minute who are willing to lend. But this is exactly where all ponzi schemes crack up. The fed’s pyramid will fall in the same spot; where it runs out of new money.

Mr. Obama says he plans on cutting the budget deficit in half by the end of his term. Let’s see… that’s 4 years out. If he’s true to his word, that will mean deficits averaging about $1.5 trillion a year… or about $6 trillion total. Where will that money come from? What sucker has that kind of cash?

America’s savers are putting their backs into it. They’re saving about 4% of GDP currently, which could rise to 5%. They typically only put less than one percent of their wealth into Treasury paper, but let us imagine that they use every penny to buy it. Over Obama’s term that could be as much as $2.4 trillion. The other big buyer is the Chinese. If they were somehow able to continue buying at the rate of the last 6 months, that would add $2.8 trillion more. So even if both these Hollywood endings should come to pass, the show would still be a horror. There would still be $800 billion worth of Treasuries left unsold.

More likely, Americans might multiply their purchases of Treasuries by 10 times… not 100 times. And more likely the Chinese might buy another $1 trillion or so. But sooner… not too much later… buyers are going to begin to notice that there aren’t enough of them to keep this ponzi scheme going. The smart ones will head for the exits early… the slow and the dull will be crushed at the doorways.

*** Meanwhile, the price of oil remains at $62… the American peso is still trading for peanuts ($1.39 against the euro) … and gold lost about $5 yesterday; it trades this morning near $953.

Do you have your positions in gold, dear reader? We hope so. We advised readers to buy gold when we first began our Daily Reckonings 10 years ago. Back then you could have bought an ounce of gold for less than $300 any day of the week. Today, you’ll have to pay more than 3 times as much… and you could have to wait a few days to find gold coins.

You remember our “Trade of the Decade?” It was very simple. Buy gold on dips; sell stocks on rallies. We’re almost at the end of the decade. So far, we’ve got a nice profit on the gold side. And a nice profit on the stock side too.

And we’re beginning to wonder what our trade will be for the next decade.

Why do we trade just once a decade? Mostly because it’s hard to figure out a winning trade; we’re too lazy to do it more than once every ten years. But it turns out that frequent trading is a losing proposition anyway. Major trends are the only ones you can spot reliably… and they take time.

In the present case, our Trade of the Decade may turn into the Trade of Two Decades. Because neither the bull market in gold nor the bear market in stocks has fully expressed itself. The price of gold is barely higher, in nominal terms, than it was 29 years ago. Some people will look at that bit of information and conclude that gold is always a losing bet. We conclude that it is sometimes a losing bet. Other times it is a winning bet. For the last ten years, gold has been in the money. Even so, it would have to nearly triple from here in order to beat its price record, in real terms, set a generation ago.

There are good reasons to think it might. Not the least of which is the aforementioned shortage of ready cash to fund the US government’s deficits. As the supply of Treasuries increases, the supply of willing and able Treasury buyers is likely to lag. Into the gap comes the Federal Reserve, checkbook in hand. Rather than allow Treasury yields to increase – which is what happens when there are more borrowers than lenders – the Fed will do the buying itself. It will buy, not with savings but with money of its own making.

As the Fed creates more new green money, the old-fashioned yellow money is likely to look better and better. Perhaps only because it will be harder to find.

There are about $1,600 trillion worth of derivatives in the world… $125 trillion worth of real estate and business assets… $100 trillion worth of stocks and bonds secured by assets… $65 trillion worth of government bonds (rising rapidly)… $4 trillion worth of actual currency… and only between $2 and $4 trillion worth of gold and silver.

We’ll take the gold and silver… at least until the bubble in Treasury debt blows up.

Source: The Worst Credit Risk in the World

• U.S. home prices posted their biggest drop on record during the first quarter, with the median price falling 14% to $169,000 from a year earlier, the National Association of Realtors said. Prices fell in 134 of 152 metropolitan areas, with values plunging the most in Florida and California.

• The U.S. trade deficit grew 5.5% to a smaller-than- forecast $27.6 billion, dropping for the first time in eight months.  The gap widened as exports slumped to a two-year low, overwhelming shrinking imports, reflecting reduced American demand for goods made abroad. The report buoyed hopes that a record contraction in global trade flows may be easing. “It’s one more indicator that things are getting worse at a lot slower pace than before,” said John Ryding, chief economist at RDQ Economics LLC in New York, Bloomberg reported.

• The Social Security trust fund will run out of assets in 2037, four years sooner than previously thought, a report by the fund’s trustees said yesterday (Tuesday).  The same report said spending on Medicare, the health insurance plan for the elderly, will reach a legal limit by 2014.  Payroll tax contributions to Social Security and Medicare, the two main safety nets for American retirees and the elderly, are declining due to the recession just as the baby-boom generation begins to retire, Bloomberg reported.

• Citigroup Inc (NYSE: C) is using almost all of the $45 billion in U.S. taxpayers’ money it received from the TARP program to make new loans.  A committee at the bank, appointed to oversee the use of the money it received from TARP, approved $44.75 billion in lending initiatives as of March 31, according to an AP story, which appeared on the New York Times website.

• A.P. Moller-Maersk, the owner of the world’s biggest container shipping business, swung to a bigger net loss than expected in the first quarter and warned that the full year might end up that way too.  The company posted a net loss of $390 million for the first three months, as the dive in global trade and freight rates hit shipping and low oil prices hit its oil business even harder than expected, Reuters reported.

• Bank regulators in all 27 countries of the European Union will conduct confidential stress tests by September, stepping up scrutiny of risks after lenders absorbed more than $1 trillion of losses and writedowns in the global financial crisis, Bloomberg reported.  Finance ministers and the EU’s executive agency will get private reports and industry data from regulators.  Results for individual banks such as Spain’s Banco de Santander S.A. (ADR NYSE: STD) or Barclays Plc (ADR NYSE: BCS) won’t be released.

Source: Investment News Briefs Wednesday, May 13, 2009

According to the latest S&P/Case-Shiller Home Price Index, U.S. home prices fell an annualized 18.6% in February, compared with February 2008 – and a 0.4% improvement on the 19% drop in January.

Some have speculated that this news means we’ve hit the bottom and the market will now begin to trend upwards again.

Not so fast. Those folks must either be eternal optimists or very shortsighted. A 0.4% improvement is one of those “you have to start somewhere” pieces of good news, not a reason to celebrate.

The truth is, average home prices are still down 30.7% from the mid-2006 peak and are running at levels last seen in Q3 2003. We’re still a very long way from a solid housing market. And given that the S&P/Case-Shiller index reports figures from the 20 largest U.S. cities, there’s no doubt that we need to see more than just one month’s worth of evidence before forming many conclusions here.

Here’s what we can say, though…

Three Housing Market Headwinds

If you’re wondering whether this housing news is the first sign of some long-awaited stability for the housing market, or just an anomaly, consider this…

While nine of 20 cities in the index showed a price improvement in February and at least provided a glimmer of hope, remember that a prolonged decline often means the market requires a longer period of consolidation before it breaks higher over the long-term. Moreover, the market is fighting a fierce, triple-pronged headwind…

• Unemployment: With U.S. companies continuing to lay off workers in a desperate cost-cutting bid, this is hardly the kind of fertile environment that will kickstart enough home sales to cut into the bloated excess supply, drive prices higher, and improve the market. Unemployed Americans won’t even be thinking about buying new houses, never mind the struggle they’d face to get a decent loan or mortgage rate. As the job market goes, so goes the housing market.
• Confidence: The current economic and real estate climate has eroded confidence among would-be homebuyers. According to the Conference Board, the number of people who said they plan to buy a home in the next six months sank to a 26-year low in March.
• Excess Supply Of Housing: With America in the grips of a recession, jumping into a beleaguered housing market is low on Americans’ priority list. Existing home sales dropped by 3% from February to March and the U.S. Census Bureau said this week that the number of vacant homes hit a record 19.1 million in the first quarter. Plus, mortgage defaults and foreclosure rates are rising.

So expect to see home prices drift along rather aimlessly for now, while the punch-drunk market drags itself back together.

The Housing Market’s Silver Lining

Now for the housing market’s silver lining…

• First, although the U.S. still has way more houses for sale than demand calls for, the inventory of new homes for sale is currently 311,000 (10.7 months of supply) – the lowest number since 2001.
• Second, with the average 30-year fixed mortgage rate still holding steady at around 4.8%, it represents an attractive entry point for buyers. However, with the Fed having spent many of its bullets to drive the rate down already, it might not dip much lower. If Ben Bernanke and his fellow bankers make this point, it could tempt would-be homebuyers into the market, for fear of missing out on lower rates if they don’t.
• And finally, there are some pockets of strength across the U.S. – in some of the hardest-hit areas, too. For example, Business Week reports that home sales on Florida’s Gulf Coast, Inland Empire in Los Angeles, and the Las Vegas area jumped around 80% in February, compared with February 2008.

Moreover, the number of available homes in California tumbled from 15.3 months worth a year ago to 6.5 months in February is a good sign in terms of clearing the market and driving up prices. However, this may be the result of speculators or first-time buyers, who don’t put a home on the market in return. The sell-then-buy equation remains very tricky and a lengthy process in many areas.

One measure that California has passed in order to boost its market is a $10,000 tax credit to anyone who buys a newly built home.

Finding The Light At The End Of America’s Long Real Estate Tunnel

As Robert Shiller, economics professor and co-creator of the Case-Shiller index, states, “The market is still doing badly. But there’s always light at the end of the tunnel.”

In other words, while depressed prices, record low mortgage rates, and government incentives worth $8,000 in tax credits for first-time buyers may spark some buying, the current recession, high unemployment, and tight lending conditions mean we’re probably still a long way from the end of that tunnel.

However, when recovery does eventually take hold, it may be perennially popular areas that have suffered the most during the bust – like California, Florida, and Nevada – that will lead the way higher.

Source: The U.S. Housing Market: Is it Time to Start Buying Real Estate?

The answer is critical to understanding the current economic depression.

This is a chart of the S&P/Case-Shiller Home Price Index.

As you can see, it’s plummeted over the last 18 months or so.

It shows that U.S. house prices have been spanked harder than a disrespectful 5 year old.

And, unfortunately, it shows no sign of bottoming anytime soon.

This makes sense considering the flood of foreclosures hitting the market.

In my parents’ neighborhood in Fort Lauderdale, Florida, homes that were selling for $250,000 during the peak are now going for $70,000 in foreclosure.

Repeat this scenario across the country, and you’ll see that home prices still have further to go.

Making matters worse is the 8.1% U.S. unemployment rate and the fact that nobody can find credit to buy a home with. (Less credit means fewer mortgages.)

As the year drags on and foreclosures keep hammering house prices, this trend will continue to drain cash from homebuilders.

That means homebuilders such Lennar Corporation (NYSE:LEN) should continue to see lower share prices as the year wears on.

As I explained yesterday, we could see some “book squaring” today, which, depending on which way the “squaring” was going could cause some additional wild swings. The Japanese yen, however, is set to book a performance in 2008 that is the best we’ve seen from yen, in 20 years! WOW! Shoot Rudy, that’s longer than I’ve been writing the Pfennig! Yes, 2009, will mark my 17th year writing the Pfennig… Just think it began with hand written notes, of which I still have every one, and has turned into a letter that is read by 100’s of thousands of people each day! WOW!

But let’s get back to yen… If yen is going well, and the dollar is going well against the other currencies, it tells me that Risk Aversion has slipped back into the markets on a larger scale, which makes sense to me, given the fighting in the Gaza Strip.

The “star” currency yesterday though, was the beaten down Brazilian real. We saw a 6 whole figure move in real yesterday… There was no news, so once again it was thin volumes causing wild swings!

We did see two pieces of data yesterday, in the U.S., that played well with the financial meltdown in 2008… First we saw U.S. Home prices fall 18.% in October, and 2.2% from the previous month! OUCH! The S&P/CaseShiller Home price index showed this 18% fall, which turns out to be a record drop! This, will continue for most of 2009 folks… There’s still just too much inventory out there to deal with, and now, even people with good credit are finding it difficult to get loans… That problem will lessen as we move through 2009, and eventually, this will all get back to normal, whatever that is!

The second piece of data was Consumer Confidence… The Consumer Confidence index came in much weaker than expected in December falling to 38.0 from 44.7 in November. This represented a record low reading for household confidence. The “experts” had thought that the fall in gas prices would give Consumer Confidence a boost… But that failed to become fact! This index is finally about where I believe it should be… Look, I DON’T WANT it to be this bad, I just think that finally people are looking around and have finally taken off the rose colored glasses!

OK… So, we’re heading to the end of 2008… I thought I would share with you some “Chuck Speak”… Thoughts from the Cheap Seats, as I think when I retire, I’ll call my newsletter! So… Here goes…

As we put the finishing touches on 2008, we’ve seen a nice Santa Rally in the euro and other currencies, especially the Swiss franc, will this continue or do we go back to the Trading Theme of rewarding the dollar as things get deeper, darker, and more dangerous?

Well… Here’s what I think… First of all, we could very well see a very nice “Obama bounce” in the first QTR of 2009, as he takes over. This would encompass stocks, and the dollar. But unfortunately, the “Obama bounce” will come to an end quickly, as a touch of reality comes over the markets about June… So, for the first 3 months, we have the “Obama bounce” and the “ding dong the witch is dead crowd” will be coming out of the woodwork. But, as I said, then a touch of reality comes over the markets, as the $1 Trillion stimulus plan is put through. Then we’ll probably see three months of capitulation before the trap door springs on the latest bubble… Treasuries…

More Treasury issuance will glut the market and soon, everyone will be heading to the EXIT door, panic setting in, as Treasury yields go higher and higher, and their bond values go lower, and lower. Why higher and higher? Well, two reasons… 1. there will be so much supply, that the yield will have to go higher to attract buyers of all this debt. 2. Inflation will be returning…

Yes, yesterday I gave you my theory on how the asset price deflation will end, and new buying will take place. Someone asked me a good question, “how will these people get the money to spend?” Well, you see, I’m not talking about the Mom and Pops in the investing world, I’m talking about the BIG BOYS, Institutions, Hedge Funds, Sovereign Funds… OK, so, then inflation sets in and now we’ve really got problems on our hands!

So… By June, we could very well be seeing a true and earnest return to fundamentals, and a much weaker dollar. Recall that when this current Credit Crisis caused dollar repatriation, I said that it could last through the election and on through year-end… Then I revised that, seeing the rot on the economy’s and Credit Crisis vine, to say that it could very well last one year, just like the last mini-dollar rally in 2005… So that would put us around June!

And that’s where the asset deflation probably ends too… So… I’ll trade today, and come back in May, eh? Nah… Just kidding, I’ve got to be here for the fireworks that will go off IF I happen to get lucky enough to have nailed this scenario!

You won’t get this scenario from anyone else folks… Most writers out there are talking about deflation setting in on the U.S. like it did Japan… And I know that I’ve spent a ton of time talking about the similarities between Japan, circa 1990’s, and the U.S. now… But I draw the line at deflation setting in for a decade like in Japan! We, the U.S. buyer, be it consumers or hedge funds, will be experiencing the 7-year itch to buy assets at depressed prices next spring… I just can’t see it any other way!

Currencies today 12/31/08: A$ .6875, kiwi .5760, C$ .8175, euro 1.3860, sterling 1.4590, Swiss .9375, ISK 145.50, rand 9.3850, krone 6.99, SEK 7.81, forint 190, zloty 2.9775, koruna 19.07, yen 90.50, baht 34.60, sing 1.4390, HKD 7.75, INR 48.80, China 6.8275, pesos 13.81, BRL 2.3325, dollar index 81.27, Oil $39.90, Silver $10.85, and Gold… $863.15

Source: The End of 2008!

• Oil prices rallied yesterday (Tuesday) jumping $4.27 to settle at $100.64 a barrel on the New York Mercantile Exchange, after earlier rising as high as $101.40. On Monday, prices fell $10.52 to settle at $96.37 – the second largest drop ever in dollar terms.

• Barney Frank (D-MA), the chairman of the House Financial Services Committee, yesterday (Tuesday) told policymakers that Sheila Bair, chairman of the Federal Deposit Insurance Corp., would seek to increase the deposit insurance limit to a level above its current $100,000 level, Reuters reported. The agency’s insurance fund stood at about $45.2 billion at the end of the second quarter.

• Prices of U.S. single-family homes fell a record 16.3% in July from a year earlier, according to the Standard & Poor’s/Case-Shiller Home Price Indexes. The S&P/Case Shiller composite index of 20 metropolitan areas fell 0.9% in July from June. Since the peak of the housing boom in July 2006, the index has dropped 19.5% the group said.

• Shares of Sovereign Bancorp Inc. (SOV) yesterday (Tuesday) shot up 70% with a gain of $1.62 to $3.95 on analyst upgrades and a new chief executive officer. Sovereign announced Paul Perrault would replace Joseph Campanelli as CEO, a move met with enthusiasm by stock analysts, Bloomberg News reported.

• Chicago Mayor Richard M. Daley announced the city had selected a consortium of investors headed by Citigroup Inc. (C) to privatize Midway Airport for $2.52 billion. The deal, approved by both the Federal Aviation Administration and the Transportation Security Administration, represents the first privatization of a major U.S. airport, The Wall Street Journal reported.

• Pfizer Inc. (PFE), the world’s largest drugmaker, yesterday (Tuesday) announced a refocusing of its research and development budget. Pfizer is looking to cut costs and focus on areas with potential high profits as it faces increased competition from generic drug manufacturers, The Associated Press reported.

Source: Global Investing Roundups Wednesday, October 1st, 2008