Rather than spend a lot of time discussing the trading day today, I thought I would concentrate on the comment we received from Erick (go back to yesterday's post and read it yourself). My central premise about the stock market continues to be that the end of the credit expansion will push the stock market over the edge.
I think it's important to understand that the ATM most people live in seems to be providing the ability for people to continue spending more than they earn. Today's report from Freddie Mac indicates that in the second quarter, 74% of their mortgage loans were cash outs compared to just 33% in 2003. The CNN article indicated that it was ok because most people were putting the money back into their homes by way of improvements, or they were using it for their kid's college education or to buy vehicles. There is some risk here.
There are other issues with mortgages like the ARM or neg-am or interest only loans that people are using to purchase homes. If rates go up, there could be a problem. We have indicated that the bond market seemed to be looking for a tradable bottom but so far that hasn't materialized and rates are indeed going up. We would be concerned about all those loans that will need to be increasing their payments should those rates go up.
One key point about the mortgages of today, there is little if any down required to purchase homes these days. Back in the 1920's, you needed to have about 50% down to buy a house and today...not much. But, the margin requirements on stocks is 50% now because of the 1920's rules that you only needed to put 10% down to buy stocks. If rates go up much at all, there may be a large squeeze on some of these mortgage payers. The unfortunate thing about all of this is that so many people are now dependent upon real estate for their financial lives, both their jobs and being able to use their homes as ATMs. We shudder to think what might happen.
Our advice has been and will continue to be, pay down your debt as much as you can. You are being given the opportunity to do so now but the temptation is to expand your debt. Be careful.
As for the stock market, we are waiting for Friday morning. The first week of the month is like this. Go take a look at the bigcharts on the links and use the symbol NDX for the NASDAQ 100 average and look at a five year chart, either daily or weekly. Tell me if you see anything that looks like a reason to be in stocks since January 2004.
See you tomorrow.
Dow Industrials: 10,683.74 +60.59
BGEIX: 11.11 (NEM and ABX were strong today)
Subscribe to:
Post Comments (Atom)
1 comment:
Right on Glenn.
If you have a deja vu about a prior deja vu, is that a deja two?
Check out the Wednesday 8/3/2005 WSJ article in section B1 column 1. It is a Deja Vu column. Titled "Land in the 1920's Florida was so hot, people sold underwater lots" Then reread my post on the blogspot regarding what our grandparents were thinking 100 years ago. Reading this article today reminded me of my post and clarified what seems to be happening again. I'm sure there are volumes on the subject but is it not likely that we are behaving (Psychologically speaking) in the same way our forefathers did 7 core and five years ago. (notice the Lincoln pun) Consider that a substanial portion of the population had participated and witnessed the bloddiest conflict in our nations history (Civil War in 1860 - 1864) and then took speculative steps towards improving their own lives that eventually led them to a catastrophic loss of economic wherewithall (Depression)? Why would we not be expected or even slightly more prone to behaving in exactly the same manner as we did 75 years ago? If people think we are crazy, imagine what people thought of the same people 2 generations ago.
Any good explanations out there?
Erick
By the way, I have noticed a surge in the number of for sale signs in the area.
Post a Comment