Friday, March 16, 2007

Robert Campbell newsletter

I just received the latest copy of Robert Campbell's terrific "Campbell Real Estate Timing Letter" (858 481 3235). Robert was one of the very first to call the top of the real estate boom back in August 2006. Robert uses both fundamentals and technicals in his report. He runs what he terms his "Real Estate Crash Index" which is a composite of various vital items such as existing home sales, notice of defaults, and the number of foreclosure sales. The Index applies to Southern California, but I think it acts as a barometer for the entire nation's real estate situation. Robert notes that the current reading on the Crash Index "is the lowest reading since the data was first collected in 1982."

Writes Robert, "If falling home prices put the US economy in recession, as I suspect it will, my guess is that a credit contraction will be far worse for the US housing market. This is because housing is highly overvalued and so incredibly over-leveraged. Trillions of dollars of mortgage debt were extended to people with no ability to pay them back."

Robert Campbell sees the picture as an enormous credit boom just a huge expansion of credit. And he notes that every boom based on a massive credit expansion ends with a massive credit contraction.

I'm very much afraid that Robert Campbell will prove to be right. If so, it promises to be a heck of a year in 2007. Yeah, it's early. Yes, the stock market is hesitating. Yes, Treasury secretary Paulson thinks "Credit issues are there, but they are contained." And yes, Fed Chief Bernanke continues to tell us that he's worried about inflation.

But if Bernanke is so worried about inflation, why doesn't he raise rates? You can bet that he won't raise rates, because that would put even more pressure on housing. My guess -- the next thing Bernanke will do will be to lower rates. But wouldn't lowering rates hurt the dollar? Of course it would, but Bernanke would rather hurt the dollar than deal with a real estate collapse. So let me put it this way -- I look for lower rates before this year is out.

Tuesday, March 13, 2007

Gold: in a bull market

There are four kinds of gold or non-gold people (1) They know nothing about gold and never even think to ask. (2) They know a little about gold, but can't afford to buy any. (3) They trade small amounts of gold, but as soon as gold moves up or down 5 dollars or more, they sell it or are stopped out. (4) the so-called "gold bugs," the small minority who understand gold and money and adhere to a policy of accumulating gold.

I'm in category number 4. But let me give you my reasons.

The great majority of investors don't understand bull markets or the concept of the primary trend. When the primary trend of an item turns up -- whether it be stocks, commodities, agriculturals, precious metals -- we call that a bull market. There are small, medium and large bull markets. Once the primary trend of a category turns bullish, there's no way of knowing beforehand, how big the coming bull market is fated to be -- nor exactly what path the bull market will take.

We do know that in major bull markets there are psychological or sentiment phases. The first phase of a bull market is the accumulation phase. This is the early phase where informed investors accumulate an item because they know the item is underpriced or that the item is underused or simply not understood.

The second phase of a bull market, usually the longest phase, sees the professionals, the funds, the big money, the smartest of the public, taking positions in the item. The second phase tends to be characterized by many reactions, corrections, adverse news events that cause the public to dump the item.

The third phase of a bull market is the speculative phase, Here we see rising volume, the wholesale entrance of the public, accompanied by news and endless hype by the Wall Street "experts." People who wouldn't touch the item during the first and second phases, are now enthusiastic buyers. The third phase sees systematic distribution by the early first phase buyers. Third phase buying can easily turn to hysteria and madness. Towards the end of the third phase, we see hints of the beginning of the next primary bear market.

Question -- Do all bull markets progress as described above?

Answer -- Almost all major bull markets do. It's a judgment as to whether an ongoing bull market is fated to become a major bull market or not. There's no definitive answer to that question.

Now I want to talk about the current bull market in gold. This is a bull market that began in August 1999 with gold priced at 252 an ounce. Gold is the most emotional of all items -- loved by much of mankind, hated by certain elements including governments and central banks. Because gold is real money, and because gold is collected, traded and accumulated by millions of people the world over, gold bull markets tend to be BIG bull markets.

The gold bull market that started in 1999 has already taken gold up 291% to a high of 734 recorded in May of 2006. But what's so interesting about the ongoing gold bull market is that neither the public nor the funds have entered the picture. In fact, most people really have no idea that gold is in a primary bull market, this despite that fact that since 1999 gold has consistently outperformed the Dow and the S&P.

I believe that the gold bull market is now in its very early second phase. Informed investors have already established healthy positions in gold. I think that a very minor sector of the investing public has now taken some kind of a position either in gold or gold stocks or a gold ETF or a gold fund. Nevertheless, it's still unusual today to find an individual who has any kind of a position in gold.

Gold has been in a corrective phase ever its May high of last year. This backing-and-filling has served to discourage many Johnny-come-lately and in-and-out traders. Meanwhile, gold remains in what I consider its "bargain phase" below 734. But what about the future?

This is important. Almost all BIG bull markets (and I believe gold is in one) ultimately move into a third speculative phase. I believe this phase lies ahead for gold, maybe a year or so, maybe three, four or five years out. It doesn't matter -- in my opinion, the longer the time elapsed prior to the entrance of the third phase, the bigger the third phase for gold is fated to be. But before entering the third phase, we have to complete the second phase. The second phase, from the looks of it, may has quite a while to go before it is completed. Question -- how many of your friends own any gold?

My thinking is that when gold finally moves into its third phase, we may see one of the most speculative third phases in history. I believe we will see gold in the thousands of dollars. I believe we will see one of the most emotional bull market third phases in history. People will look back on the year 2007 and wonder what the world was thinking about with gold selling for $650 US dollars, dollars that were created out of thin air, fiat dollars which could be created by central banks in any quantity in at any time.

At any rate, that's the way I see this sluggish, unexciting, slowly-moving gold bull market here in 2007. I lived through and profited during the gold bull market of the 1970's. That bull market was based on inflation fears. This bull market when it moves into its third phase will be based on fear of the viability of the dollar and all fiat money. This bull market is fated to be much bigger than the bull market of the 1970's.

From Dow-Theory-ltrs

Wednesday, March 07, 2007

Housing Market

The so-called experts are acting as though the housing "adjustment" is about over. I'm afraid that's wishful thinking. When housing booms (bubbles) of the past topped out, the aftermath has tended to last eight to ten years or even more. The aftermath of the recent housing bubble is about one year old. The odds are that there's more to come -- probably a lot more.

From the end of the year 2000 through the third quarter of 2006, mortgage debt increased by $14.7 trillion (that's not billion, that's trillion). As much mortgage debt was created in the most recent six years as all the mortgage debt of the last 50 years.

With subprime lenders now in trouble, the normal reaction by the Fed would be to lower rates as quickly as possible. But that's not feasible today, not with the dollar on the edge, not with the US dealing with massive trade, budget and current account deficits.

As for the markets. After two 90% down days within a four-day period, yesterday produced a 90% upside day. This might suggest a change in sentiment -- first two panic days to the downside, then yesterday an almost hysterical "buy day" on the upside. The question, the big question, now is how much of a bullish follow-up can the market produce? Was yesterday's big 90% upside day simply a "dead cat bounce" -- or are investors ready to take the market substantially higher?

One hint is that volume was heavier on the downside Monday than it was on the upside Tuesday. That suggests that a good deal of Tuesday's advance was a product of short covering.

Monday, March 05, 2007

Super Rich: what they invest in

This from the Lex Column of last weekend's Financial Times. "As for investing, the simplest way is to imitate those who have already been there and done it -- the super rich. They have had a rip-roaring time of it in recent years. . . What is their secret? The answer appears to be surprisingly mundane -- saving pennies and diversifying exposure. A recent survey in the US found that they held almost nine-tenths of their investable assets in such things as cash, equities, bonds, managed accounts, and retirement plans. On average, this group saves almost a quarter of its gross income.

"Risk aversion makes some sense for the super-rich. If you are sitting pretty, why gamble? Some 43 percent of those surveyed said they preferred a guaranteed rate of return on their investments, up from 29 percent in 2003. The proportion of investable assets in alternative investments such as hedge funds has dropped steadily since 2003, from 9 percent to just 5 percent."

Here's how the rich are invested in 2007. They have 22% in alternative investments, 15% in real estate, 11% in cash, 21% in fixed income (bonds), and 31% in equities. In other words, they are quite diversified.

Currency valuations, stocks are not priced to provide attractive long-term returns. At current prices, I would just as soon own T-bills as stocks. Thus, I have recommended T-bills or T-notes for steady income, and gold and silver as protection against inflation. There are no bargains today, only the hope of success through speculation. Personally, I'll take the path of guaranteed return, which means bills and notes. I also like AAA-rated municipal bonds.

Sooner or later the bargains in stocks will appear. I'm in no hurry, I'll wait.

Sunday, March 04, 2007

Zillow listings soar

I have been trending the Zillow listings "For Sale" and "Make me Move". The are soaring nationwide. The owner of Zillow put the Travel Agents out of business by launching Looks like he is well on his way to putting Realtors out of business by using Zillow. If you have not been on there lately check out the aerial photos. They have amazing clarity.

Jan. 15th: Home for sale listed on was 26,400

Feb. 15th: Home for sale listed on was 41,800

Today: Home for sale listed on was 50,600

The listings almost doubled in 1.5 months.

Do you think this trend will continue or is Zillow a flash in the pan.