Britannia Radio

Wednesday, April 8, 2009 Wondering if the bear market rally is really over... Headed toward the Great Deception... Housing in the Golden State is down 40%-50%... Wayne Burritt on positive news in the real estate sector...and more! The Great Deception by Bill Bonner Los Angeles, California It’s the Great Deception... Not much time to write this morning. In a few minutes, we’re getting on a flight from L.A. to Buenos Aires. Now, in the lounge in Houston, we’re wondering if the bear market rally is over... The Dow fell again yesterday – down 186 points. It could be that the rally is over...and at only about 15% up from the bottom. That would be a disappointment to many investors. They were just beginning to think the worst was over. Which makes us think that the rally is probably NOT over. It’s too soon to hammer the bulls. Not enough of them yet. This market should rise more...in order to draw in more suckers. You saw our guess yesterday. We’re headed towards a Great Deception. The bulls are deceived into believing we’re in a new bull market. They’ll be disappointed when this rally falls apart. They’ll give up on stocks and sell the market down to the 5,000 level...or below. The gold and commodities markets deceive the bears. They expect prices to go up as the feds put in more money. They’ll be disappointed when gold sinks. You saw the big whack they gave gold on Monday. It went down hard. Yesterday, it recovered slightly – back up $10. The big spenders will be disappointed too. They’ve got debt. And they’re counting on consumer price inflation to lighten up those debts, making them easier to pay. Instead, deflation will make their debts heavier...weighing down so heavily on the debtors that many of them will be crushed by it. This action in the gold market tells us that we’re a long way from the final stage of the bull market in gold. Investors sell it when they think things are getting better. But when things get better, gold will soar. Because then the monetary inflation the feds have put into the system will turn into consumer price inflation. We could see rates of consumer inflation substantially higher than we saw in the ‘70s. And we could see gold prices over $2,000...maybe over $3,000 per ounce. On an inflation-adjusted basis, the price of gold would have to go to about $2,300 an ounce just to equal its price in 1980. If this inflation is worse – as, most likely, it will be – gold should go much higher. Our intrepid correspondent Byron King believes gold will go much higher...so much so, he wrote a special report on it. Read the special report – and find out how you can get at least 2 years of locked-in value, no matter how high gold actually soars – by clicking here. Then, it will be the dollar savers who are disappointed. They think dollars are the safest place in the world to put your money. But when inflation rises, their savings will lose half...maybe 3/4s...of their value in just a few weeks. But don’t hold your breath, dear reader; the final stage could be years away... Here’s Addison and The 5 with some insight on how the final stage might begin: “Registered voters now consider ‘budget deficit and national debt’ the biggest threats to America’s future,” reports Addison Wiggin. “Check out this survey released by the Peterson Foundation this morning: “Of course,” continues Addison, “the Peterson Foundation would benefit from the poll going this way... they’re debt hounds through and though, like us. David Walker, their President and CEO, was a protagonist in our documentary on fiscal irresponsibility. “But best we can tell the poll was legit, and frankly the results are hardly surprising – consider that $11 trillion national debt and another $50-60 trillion in entitlements. Between The Fed, Treasury and FDIC tack on another $8 trillion in bailouts and purchase programs since the recession began. Bush’s $160 billion stimulus plan. Obama’s $787 billion stimulus... “We know conceptualizing the debt a few years ago might have been tricky for ‘Joe Sixpack.’ But after all we’ve been through, how could even the most countrified American not see the forest for the trees?” In lieu of writing their daily musings this week, Addison and the rest of Agora Financial’s editors are converging upon our Baltimore headquarters to discuss the market, the economy and the world as we know it. These editorial meetings typically bear some of our most exciting new investment themes and economic forecasts... ideas that will likely appear first in The 5 Min. Forecast. Stay tuned. In the meantime, if you feel threatened by our booming deficits, check out our latest special report: What is Hyperinflation? And back to Bill, with more observations: This is the worst financial crisis since the ’30s. Housing in the Golden State is down 40%-50%. Near Maria’s apartment, in the hills above Silver Lake, we saw a house for sale. A rundown affair, it was surrounded by bamboo, which at least gave it some privacy. “Bank Owned,” said the sign. Maria needs a new place to live, so we were curious. We jotted down the phone number and called. It turned out, it was two separate units...and it had just sold for $150,000. A couple of years ago, it probably would have brought twice that amount. The place was a wreck, of course. But it was a small wreck; it couldn’t cost too much to set it right. Let’s see, if you rented each unit for just $1,000 net of direct expenses...you’d have rental income equal to about 15% of your investment. Not too shabby. Unemployment in California just went over 10%. Tax revenues have collapsed, bringing Arnold Schwarzenegger’s state government to the brink of bankruptcy. Out of cash, the state was forced to pay its employees in IOUs. Many people in the state must feel like they’re awaiting execution. But there is no sign of panic...and no sense of alarm. We saw no food lines. We saw no tent cities. We didn’t even see many “For Sale” signs on the houses – at least, not in the old parts of town. Instead, there were crowds in the shops...in the restaurants...and on the highways. And the cars on the freeways all seemed to be expensive brands – Audis, or Lexuses, or Mercedes... At least in L.A.’s old neighborhoods, life seemed to go on as it always has. What to make of it? How come there is no obvious sense of desperation? How come there is no hint of revolution? More tomorrow... Until then, Bill Bonner The Daily Reckoning --------------------- Special Offer --------------------------- A Secret Way to Multiply a 39% Gain... Into Nearly 314% Stop paying full price for stock gains... This secret can pay without buying a single share...with much less risk and much less work...for anybody who’s finally ready to get started... --------------------------------------------------------------- The Daily Reckoning PRESENTS: We’ve been experiencing a slight uptick in the markets as of late...nothing that says we’re out of the woods quite yet, but at least a move in the right direction, according to Easy Money Options’ Wayne Burritt. He’s been looking at the markets for tiny morsels of hope, and he’s found some in an unexpected place: the real estate sector. Read on... Market on the Mend by Wayne Burritt Asheville, North Carolina There’s no doubt the U.S. equity markets are in the midst of a decent upside run. Take a look at this chart of the S&P 500 – a good stand-in for the broader U.S. stock market... As you can see, after bouncing off 673 on March 9, the S&P 500 has surged a stunning 23% as of last Friday. That’s some seriously bullish action. The market has also bounced on higher average volume, which is indicated on the volume section of the chart by the black line. Significant? Certainly. When market moves to the upside are driven by higher-than-average volume, it’s a clear sign that bullish investors are getting involved and are willing to buy shares to prove it. But that’s not all. To find a similar bounce to the one we’re in the midst of right now, I have to go all the way back to last November. Then, the S&P surged from a low of 741 to 944 in January. That translated to a 203-point upswing, or a whopping 27% upside run. My take: A bounce similar to the one we’re in right now ignited a move of nearly one-third in U.S. stock prices just a few months ago. Considering that we’ve moved 23% in just a matter of days, my thoughts are the recent surge has decent legs. Sure, we’re not out of the woods yet, not by any stretch of the imagination. But facts are facts, and the recent market action bears that out: We’re moving in the right direction... especially in one of the most important sectors – real estate. "...one of the big triggers of a decent, well-founded recovery - in the economy and the stock market - will be an improvement in the real estate sector. And while the latest news isn't mind-blowing, there are a few positive morsels." Ever since the financial crisis began, I’ve said that one of the big triggers of a decent, well-founded recovery – in the economy and the stock market – will be an improvement in the real estate sector. And while the latest news isn’t mind-blowing, there are a few positive morsels. Remember, I’m looking for positive moves in real estate for a simple reason: Improvement in this sector means increased sales and stabilization in prices. That, in turn, will ignite new lending. After all, with reliable prices and positive sales movement, homebuyers know what they’re buying won’t get crushed. And lenders know what they’re lending will likely be paid back. Now, even when the real estate market recovers, we’re not going to see the surge in prices and buying that started one of the biggest asset bubbles of all times. A ton of that was fueled by underqualified borrowers and downright lousy lending practices. And while banks have short memories, they aren’t that short. Rather, the recovery in real estate will begin with baby steps: small moves in the right direction. And the latest news is just that. Take a look... As you can see from this chart, existing home sales in February jumped to the upside. In fact, compared with January, home sales were up 2.6% in the West, 6.1% in the South and a whopping 15.6% in the West. All told, existing home sales in the United States increased a solid 5.1%! The news gets better. Sales comparisons with the same period last year – which tend to be less volatile than month-over-month numbers – show some huge bright spots. In fact, while overall home sales in the United States were down 4.6% in February compared with last year, sales in the West were up a stunning 30.4%. That’s right, February home sales in the West – which includes the super-important Southern California and Las Vegas real estate markets – rose nearly a third compared with last year. Plus, it marked the eighth straight month of year-over-year increases for the region. Now get this: With the real estate market in the West generating a whopping 1.2 million units in annualized sales, sales activity is now a staggering 38% above its cyclical low point of 870,000 units marked in October 2007. That means – from a sales angle – a market bottom in this key real estate region is way, way in... and has been so for months. So what’s driving the bullish numbers in real estate sales? No surprise here: The median home price in February was just $165,400, 15% below its year-ago level. Sure, we want to see these prices stabilize. But the fact is with 45% of home sales distressed – either in foreclosure or in short sales – these prices are going to take a hit. And while the process is painful, the market needs to clear off unwanted inventory before it can really begin to get back on its feet. But mark my words: Lower prices aren’t going to last forever. And it’s not just because sales activity is beginning to accelerate. See for yourself... As you can see from this graph, the National Association of Realtors says housing affordability is rising fast. In fact, at a current level of 167, home affordability is now 25% easier than the year-ago’s 133 level. So what does a Housing Affordability Index (HAI) level of 167 really mean? It’s pretty straightforward. An index level of 100 means that the typical family earning the median income in the United States has exactly enough income to qualify for the average mortgage. So with the HAI at a whopping 167, the average family in the U.S. has 167% of the income necessary to buy an average home. Talk about buying power! Regards, Wayne Burritt for The Daily Reckoning