Updated March 2020
Another ominous warning sign that the housing meltdown has only begun and not ended is the huge drop in the practice of taking home equity loans. This is how most of the masses have been leading their lofty lifestyles and buying stuff with money they don’t have. Now that house prices are falling they are running scared and the worst part is that their bill has increased significantly. To put things into perspective, there was 52% drop in home equity loans in the 3rd quarter; total withdrawals slid from 235.9 billion in the 3rd quarter of 2005 to 113.5 billion in the 3rdquarter of 2006. Expect this to drop even more by the end of this quarter. Things are not getting better as the press and top economists would have you believe they are getting worse.
Housing Boom & Bust; Late Mortgage Payments
According to the Mortgage Bankers Association (MBA), late payments and foreclosures rose in the 3rd quarter and this trend is expected to continue as a huge number of adjustable mortgages reset in the next couple of months. When these mortgages reset the monthly payments are going to go up significantly; to make matters worse those that have already fallen behind will pay even higher rates because their credit rating has already fallen.
Expect the number of foreclosures to increase substantially next year; foreclosure rates could hit new 3-6 year highs. The biggest increases will be in the formerly red-hot markets of Florida, New York, Arizona, California, etc. Our advice for over two years for those who had more than one home was to sell one or more; risk-takers were advised to sell their existing homes and rent. The MBA predicts that a whopping 1.1 to 1.5 trillion worth of loans will reset next year; 700 million of this amount will be refinanced and up to 800 million will adjust at less affordable rates. The fireworks are going to begin sometime next year.
Coronavirus, the housing boom and the stock market (March 2020 Update)
The Coronavirus issue is going to be blown out of all proportions and it will be made to look like the mother of all pandemics. We feel this is a test by the big players that control most of the media outlets to see how far the truth can be stretched and so far it’s working marvellously. It is estimated that eight corporations control the bulk of the media in the US.
Now people are being checked with thermometers to see if their temp is above normal and an above-normal temperature has now become the litmus test for the Coronavirus; voodoo science at its best.
Incompetence is the bigger issue
One cannot lay the blame solely on Trump or the Republicans; both parties have exhibited gross levels of ineptitude bordering on the insane. But there is always a silver lining even though it’s difficult to see. There are some parallels to what took place in 2008, however the crash in 2008 began on a note of euphoria. Note however the Fed purposely made that crash worse by refusing to bailout leman brothers. Ironically, the $700 billion bailout package they approved after the carnage would have been more than enough to bail Lehman out.
This hysteria based sell-off is producing one of the biggest buying opportunities in decades, more on that later.
In the short-term technical analysis cannot identify support levels because we are dealing with madness, and that is the reason, we added the new level in the anxiety index. What exacerbates the situation is that there is very little liquidity, look at the bid and ask price on some options they are unreal, for example, a bid of 1.40 and ask of 5.00. This provides a few big players with the opportunity to move the markets in whatever direction they see fit.
On the same token one could state that the government could have come out and told the masses the worst and the markets would have pulled back but not as dramatically as they have done now. The data was released in pieces and each piece created more havoc than the preceding piece because hysteria took over.
Statistics from the CDC
CDC estimates that the burden of illness during the 2018–2019 season included an estimated 35.5 million people getting sick with influenza, 16.5 million people going to a health care provider for their illness, 490,600 hospitalizations, and 34,200 deaths from influenza (Table 1). The number of influenza-associated illnesses that occurred last season was similar to the estimated number of influenza-associated illnesses during the 2012–2013 influenza season when an estimated 34 million people had symptomatic influenza illness6. http://bit.ly/2UMJjMG
In comparison to the flu virus, the Coronavirus has caused a minimal amount of damage yet it has received 100X more coverage than the flu virus, which resulted in 34.200 deaths (and only US data is being used); the current death toll of the Coronavirus stands at 1113 (based on the latest data). It’s no laughing matter, but it still pales in comparison to those caused by the flu. Even more sinister is the Worldwide death toll from smoking:
Stock Market outlook
There is a 75% chance that the markets will experience at least one strong pullback this year, it would be foolhardy to attempt to predict the exact date though it would be ideal if this event took place during the 1st quarter. Market Update Feb 20, 2020
This correction is taking place in the ideal timeline so it when it ends it will lead to a spectacular rally, those waiting for the crosswinds to subside will (as always) be left holding a can with rotting worms.
The only thing that can help stabilize the situation immediately will be one of the following
- The press starts to report the news accurately; all they have to go is go to worldmeters.info to get a better take of what is going on. For example, this Nobel Laureate (a biophysicist) predicted how things would unfold in China, and they unfolded exactly as he claimed, and he is now making similar proclamations for the rest of the world. So if the Press reported facts instead of fiction, the situation would be much better.
- A new rapid detection test is announced. This will be good news as it will allow a massive number of individuals to be tested, which will prove to the masses beyond any reason of doubt that the mortality rate while higher than the flu is not as dire as the fear mongers are claiming
- The US comes up with concrete measures to rapidly test a large number of individuals. This would be seen as good news because the average death rate is 1.28%, and that’s considering all groups. This is significantly lower than in China and many other nations.
- A vaccine works in clinical trials. The FDA is going to approve the usage of this vaccine extremely fast. However, data has to show that it works even with limited trials.
- A treatment that has a 90% cure rate.,
The masses beg for an opportunity to buy stocks at a lower price when that opportunity arises the masses panic stating that they need to wait for things to get better before jumping in again. And so they wait, and when things finally get better, they notice that the price of everything they wanted to buy is higher than it was before and so starts the next stage of sorrow.
This hysteria based sell-off is producing one of the most significant buying opportunities in decades, more on that later.
In the short-term technical analysis cannot identify support levels because we are dealing with madness, and that is the reason, we added the new standard in the anxiety index. What exacerbates the situation is that there is very little liquidity, look at the bid and ask price on some options they are unreal, for example, a bid of 1.40 and ask of 5.00. This provides a few big players with the opportunity to move the markets in whatever direction they see fit.
Other Articles of Interest:
Stock Trends & The Corona Virus Factor (March 14)
Trading The Markets & Investor Sentiment (March 3)
Stock Market Bull 2019 & Forever QE (June 13)