Commodities Investing: Are BHP Billiton and Rio Tinot's Alcoa buyout plans bogus?
By Ian Cooper
“I haven’t heard from my realtor in five years. On Saturday, the guy shows up at my house with a box of Valentine’s Day chocolates to muster up business,” says Christian DeHaemer. “If that’s not proof of a bad housing market, I don’t know what is.”
Not even the homebuilders see this mythical improving housing market, nor do the 20 some odd sub-prime lenders that have filed for bankruptcy protection, such as ResMae Mortgage, which just filed.
Truth is – this mythical housing bottom touted by talking heads is just that… mythical. If we’re lucky, we’ll begin seeing some signs of bottoming in the spring of 2008. But not now... Not with recent housing starts showing a substantial 14.3% drop to its lowest levels since 1997. The drop even has the most optimistic “housing bottom callers,” questioning whether the housing slump will last longer than expected.
It’s especially bad news for sub-prime lenders, in particular, battered by higher mortgage foreclosures. These are the high-risk companies that make loans to borrowers with less than perfect or poor credit histories.
I’d love to sit here and jump on the bullish housing bandwagon that dominates Wall Street. Really, I would. But I’m not a fan of flushing my money down the toilet. In reality, the housing market has not bottomed. Sub-prime lenders are doomed. You can continue to listen to the delusional madness pouring from the mouths of Street analysts, and the mainstream press, or you can listen to the homebuilder CEOs and the sub-prime lenders that have gone belly up because of a weak housing market.
It’s your choice. But I’d go with the latter, though. Even JP Morgan’s CEO, James Dimon, is bearish on the sector, saying, “’Mortgages are the one area of sub-prime lending where ‘we really see something taking place that looks like a recession...’”
Take care,
Ian L. Cooper, Editor, Death Cross Trader