The recession started with the housing bubble….
And it will begin to end with an improvement in that sector.
At the current sales pace, there are 9.6 months of supply of existing homes on the market.
Compounding this problem, are high mortgage rates, as the Fed keeps pumping money into the system.
The volume of mortgage applications filed last week dropped a seasonally adjusted 18.9% from the week before, as refinancing activity plunged, putting the MBA survey’s refinance index at its lowest level since November.
With housing in dire straits, there is a negative wealth effect; in this environment, with incomes much lower, the problem is accentuated by the savings rate flying to 6.9%; this further dampens spending power.
When the consumer is not spending, goods will not be in demand;
When goods are not in demand, manufacturing activity slackens.
Capacity utilization drops and it has dropped to abt 65%, instead of 70%.
This leads to job layoffs.
In the meantime, we have the time bomb of inflation being carefully nurtured by the Fed, by the indiscriminate printing of money… this is in at a time when banks are not lending liberally;
When they do, this supply, plus the trillions printed by the Fed will hit the system, resulting in inflation which Mark faber thinks, could touch 20%.
This thesis will enlighen you as to why the Indices at their current level are a con and a danger for the innocent investor.
To invest in bonds is dangerous, because the US$ is expected to lose about 50% of its value over a protracted period of time, due to the huge monetization of debt.
Investing in gold could be one of the best bets.
